WASHINGTON, Oct 9 (Reuters) - Private insurers are unlikely to develop a functioning market for coverage of nuclear, biological, chemical and radiological attack risk despite a U.S. House of Representatives bill requiring them to offer it, a senior U.S. Treasury official said on Tuesday.
David Nason, assistant secretary for financial institutions, said the provision in the House-passed Terrorism Risk Insurance Act renewal bill might even make it more difficult for insurers to provide conventional terrorism risk insurance.
“If insurers must offer NBCR-terrorism risk coverage, insurer capacity might draw from conventional attack capacity,” Nason told an insurance group conference in Amelia Island, Florida.
“Moreover, some insurers are concerned about taking on such exposure and the effect on credit ratings and more importantly, their solvency in the event of an actual attack,” he added.
The Bush administration has threatened to veto the TRIA reauthorization bill if it is approved by the U.S. Senate without changes.
TRIA was created in the wake of the September 11, 2001 attacks to make the federal government the insurer of last resort for damages from a terrorist attack too massive for private insurers to handle. It is due to expire on Dec. 31 unless it is extended by Congress.
Even with the current TRIA law, there is little availability of NBCR coverage, Nason said, adding, “We at Treasury are not convinced that the House’s approach will lead to the development of a NBCR market.”
He added that the federal government already shoulders some NBCR risk, given expectations that uninsured losses from such an attack would likely be compensated through federal disaster aid programs.
Nason said the Treasury objects to the 15-year extension of the program, which he called a “de facto permanent extension”. The Treasury wants to phase out TRIA to increase private sector participation in terrorism risk coverage.
The Treasury also objects to the bill’s failure to increase private sector retentions and to a new backstop for group life insurance.