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Verbal Testimony of Gregory V. Serio, Superintendent of Insurance, before the U.S. House of Representatives Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises and the Subcommittee on Oversight and Investigations

April 28, 2004

Mr. Chairman, Madam Chairwoman, and members of the subcommittees, I am Gregory V. Serio, Superintendent of Insurance for the State of New York. The opportunity to come before you today to relate New York’s experiences with the Terrorism Risk Insurance Act is greatly appreciated.

Let me get right to the point. TRIA is a success by any measure, and has been very effective in stabilizing a tumultuous insurance market in the aftermath of September 11th and it has been a key factor in stabilizing and re-engineering New York’s economy. As we have opined many times over the past two years, TRIA was an insurance buyer’s law, allowing the continuation of critical insurance coverages for those who needed to or wanted to maintain the level of coverage routinely available prior to September 11th.

The success of this initiative cannot and should not be measured simply by the number of businesses who availed themselves of terrorism risk protections through TRIA. Some businesses chose to go without coverage for terrorism risk, and others chose to rely upon the already-meaningful protections offered by the standard fire insurance policy widely available in the United States prior to September, 2001, and still in place in New York and other states.

For those businesses that wanted or needed terrorism risk protection, TRIA became their safety net. Coverages were required to be made available at the same limits and terms as other property/casualty coverages, thus assuring "all risk" protection for those who needed it for lending agreements, contractual obligations, or their own peace of mind. The businesses of New York who availed themselves of the opportunity to establish captive insurance companies to better manage – and afford – the terrorism risk coverage through the benefits of TRIA, should also be counted among those who consider TRIA a success. Yet, those who did the responsible thing by establishing self-insurance mechanisms to manage terrorism risks, to not get included among those who opted to take-up TRIA-provided terrorism coverage, even though the covering of risk placed through captives is one of the strongest provisions of the TRIA law.

President Bush, the Congress – especially the leadership of the House Financial Services Committee and the Subcommittees before whom we appear today – together with the Treasury Department, in the manner with which they have managed the TRIA program, are owed our gratitude for moving with a singularity of purpose to help protect New York’s businesses.

As the National Association of Insurance Commissioners indicated in a letter to Secretary Snow, a copy of which is annexed to my testimony and that I request is included as part of the record of these proceedings, the continuation of the make-available provision of TRIA beyond September 1st is crucial. Maintaining a steady flow of insurance to the business community will keep business – and the economy – moving without fear of, or actual, disruption caused by the lack of availability of "all risk" insurance coverage. TRIA has been one of the main ingredients in the recovery and renewal of lower Manhattan and the New York economy, and it should continue to provide that position - a stabilizing element as we continue to strengthen. The restoration of the national economy, and the economies of all major cities that depend upon insurance as a key component, will also benefit from a decision to maintain the make-available provision in TRIA.

There is already much discussion taking place on the larger issue of the continuation of TRIA. As with the make-available issue, early consideration and deliberation on the re-authorization of TRIA is also in everyone’s collective best interest. Even as Treasury performs its due diligence on the law’s effectiveness, there can and should be discussion on steps to be taken to assure the continuity of coverage, that is TRIA’s hallmark, along with the business cycle. Again, the mere potential for disruption should be avoided.

Already, there is a school of thought and body of evidence that TRIA should be continued, and improved. Straight reauthorization of the Act without deliberation on improving private participation in terrorism risk cover, the availability of state-based options, better managing the still-unaddressed concentration-of-risk issue and other considerations would not be advisable. Reconsideration of group life insurance participation in TRIA – an issue on which we respectfully disagree with Treasury’s final determination to leave group life out of the TRIA program – maintaining or expanding TRIA protections for captives and other self-insurance mechanisms, and addressing straight-on the complexities of workers’ compensation issues in the terrorism risk context – heavy concentration-of-risk with long-tail liabilities makes it particularly challenging – could all improve the Act. Knowing of and appreciating the federal government’s concern over permanentizing TRIA – something we do not advocate – is important to this discussion, but a public/private partnership with meaningful federal government participation is critical to the continued stabilization of the commercial insurance market, at least in the near term. That participation, in fact, should well be calibrated to the inability of long-term solutions to the terrorism and catastrophe risk and insurance challenges before us now. Short-term continuity of coverage through TRIA together with productive discussions on long-term remedies I believe is in everyone’s interest. To that end, New York, together with the Insurance Commissioners of the District of Columbia and other states most affected by terrorism risk have been meeting with Congressional and Treasury staff, insurance brokers, carriers and, most importantly, our business communities, to spearhead the discussions on appropriate changes and improvements to TRIA, greater private sector participation in the terrorism risk insurance market and state options for improving these markets. Governor George Pataki, in workers’ compensation reform legislation submitted to the New York Legislature, provides one such option by calling for a change in the way workers’ compensation insurance is written in New York, by defusing the concentration of risk by allowing multiple insurers on a single workers’ compensation risk. Changing the statutory requirement of "all risk" coverage to allow a syndication of workers’ compensation risk may just be one way for us to effectively manage this issue, and can serve as a catalyst for additional discussion along these lines.

Thank you for allowing me to present these views this morning, and I look forward to answering any questions you may have.

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