Who Bears the Risks of Terror?
By EDMUND L. ANDREWS
Published: July 10, 2005
The Terrorism Risk Insurance Act will expire at the end of the year unless extended. The fundamental question is whether a collected Pool (Insurance) should bear the risk, or Taxpayers. The answer to the Question requires examination of Insurance itself. Insurance serves as the facility to replace unacceptable losses. Premium-Payers band together through Insurance companies to assure they will possess the financial assets to pay for Replacement Costs if insured items are damaged or destroyed.
The entire rationale of Insurance is to bear those Replacement Costs. Legislation should be passed forbidding Sale of Insurance which does not bear the entirety of such Replacement Costs. Insurers like to chip away at the effective provision of the full value of such Costs, in order to raise the profitability of such Insurance supply. Congress should recognize the inherent nature of this practice, and stop it.
Insurers and Commercial Business would enjoy Taxpayers' assumption of the Risk, because Insurers could sell more Insurance with less overall Premium Cost, and Commercial Business could enjoy higher Profits paying lower Premiums to insure against a potential Risk. Taxpayers do not want the burden of such Risk (though Taxpayers compose a much larger Pool) due to the fact they have far less Risk of Terrorist Act. Insurers and Commercial Business, on the other hand, know they will have to pay far less in Replacement Cost taxation than they would in Risk-Coverage Premiums.
The Terrorism Risk Insurance Act should not be renewed. It should not have been enacted in the first place! Congress should insist Insurers simplify Contract Coverage, and demand Replacement Cost provision, or refuse to allow Insurers license to sell Insurance. The greater demanded Premiums will be a heightened Cost to Commercial business, but is indeed a legitimate Cost of doing Business. Let the Market bear the Risk. lgl