A Senate Homeland Security Subcommittee hearing set for Thursday, May 26, is the latest in a series of Capitol Hill examinations of port security and the potential economic harm terrorists can cause. These hearings clearly reinforce the need for swift congressional action to keep the nation’s terrorism insurance mechanism in place beyond Dec. 31, 2005, according to the American Insurance Association (AIA).
“If terrorists attack a port, or somehow use cargo as a weapon, either in port or when it has left port via rail, truck, or air, there could be massive losses,” noted Leigh Ann Pusey, AIA senior vice president, government affairs. “Such terrorist acts would disrupt port operations and the flow of goods throughout our economy.”
Terrorism insurance is available today for port property and infrastructure that could be destroyed, disabled or shut down by terror attacks because of the existence of the Terrorism Risk Insurance Act of 2002 (TRIA). In addition, TRIA has enabled all longshoremen, ship crews, and others who work at or near ports to continue receiving broad protection under workers’ compensation coverage, Pusey noted.
Since the Sept. 11, 2001, terrorist attack, however, concern has increased that terrorists could smuggle nuclear, chemical, biological, or radiological weapons (NBCR) in some of the approximately nine million oceangoing containers that arrive in the United States every year. This concern is a central focus of the hearing.
With TRIA’s Dec. 31, 2005, expiration date looming, time is running short for businesses of all kinds – as well as ports, municipalities and other entities that depend on commercial insurance – to recover from potentially catastrophic losses.
Many annual insurance contracts being written now only contain terrorism coverage through the end of this year because there is no assurance that Congress will keep some form of the existing public-private terrorism insurance partnership in place beyond that date.
As a result, the ongoing debate over how the U.S. should deal with the potentially catastrophic financial risks of terrorism (including NBCR risks) in both the short- and long-term must be resolved quickly. Otherwise, there will be widespread market dysfunction in several sectors of the U.S. economy as insurance against terrorist acts becomes prohibitively expensive or disappears entirely, Pusey cautioned.
For example, the head of the Alabama State Port Authority has publicly said that he “supports keeping federal terrorism insurance available beyond the end of this year.” According to Jimmy Lyons, the Port Authority’s Director and CEO, “If not for TRIA, the Alabama State Port Authority could not have afforded to purchase terrorism insurance for the first time in October 2003. Prior to then, terrorism insurance was cost-prohibitive.”
Lyons has seen up close the difference a federal terrorism insurance mechanism can make in the marketplace, and why this economic safety net cannot be allowed to unravel. “For fiscal year 2003, a six-month terrorism insurance package for the Port Authority would have cost $175,000,” Lyons said. “In fiscal year 2004, a 12-month package of similar coverage cost the Authority $82,337, and in fiscal year 2005, our TRIA coverage costs decreased by almost 12.5 percent to $73,205.”
“There is no disputing that TRIA is making terrorism insurance available so that ports and other vital components of the U.S. economy can recover if they are the next victims of a terrorist attack,” added Pusey. “Securing U.S. seaports and cargo entering the country is essential to our country’s overall fiscal and national security.”
Legislation (S. 467) co-sponsored by Senators Christopher Dodd (D-CT) and Robert Bennett (R-UT) would keep a federal terrorism insurance safety net in place after Dec. 31, 2005, and establish a commission to take up the challenge of constructing a long-term solution.
“We are very encouraged that members of this Senate Homeland Security Subcommittee and other senators are working hard to do everything that can be done to prevent further terrorist attacks on U.S. soil,” Pusey stated. “We just want to keep reminding all members of Congress that the existence of federal terrorism insurance is a crucial ‘box to check’ as they act to fully secure our economy.”
The hearing is entitled: “The Container Security Initiative and the Customs-Trade Partnership Against Terrorism: Securing the Global Supply Chain or Trojan Horse?” It is expected this will be the first in a series to be held by the Senate Committee on Homeland Security and the Governmental Affairs Permanent Subcommittee on Investigations.
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