Sept. 11, 2001, was a sucker punch of unprecedented proportions, and the masterminds of the attack were certain it would result in as much devastation to the American economy as it would inflict upon our nation’s psyche.  It was the deadliest terrorist attack in our planet’s history and the largest man-made insurance disaster on record.  Altogether, the attacks resulted in an estimated $35 billion in insured losses.

To any other nation on earth, such a catastrophe would spell economic ruin for decades to come.  Immediately after the attacks, insurers began excluding terrorism coverage from their policies, or pricing policyholders out of coverage.  But Congress responded quickly and responsibly to the problem in passing the Terrorism Risk Insurance Act (TRIA), providing an insurance backstop for terrorism coverage.

TRIA has proven invaluable in sustaining the reinsurance industry over the past five years, serving as a temporary federal backstop to guarantee the availability of terrorism coverage while insurers regained their financial footing following 9/11.  Because of TRIA, terrorism insurance is widely available and affordable to businesses wishing to locate in potentially targeted geographic areas.  In fact, according to the most recent Department of Treasury report on the terrorism risk insurance market, the percentage of companies buying terrorism coverage has climbed to 58 percent in 2005 from 27 percent in 2003, and the cost of coverage has fallen to “roughly 3 percent to 5 percent of total property insurance coverage.”  Reinsurance availability for terrorism coverage has also grown with TRIA’s enactment, with recent estimates suggesting that $6 to $8 billion of terrorism-specific reinsurance is now available, growing by $1 to 2 billion per year.  Under TRIA, the terrorism insurance marketplace continues to strengthen, expand, and manage an increasing level of exposure – precisely what Congress envisioned when it originally passed the bill.

While the nascent private market continues to grow, unfortunately, it is not yet self-sustaining.  Insurers continue to develop improved and sophisticated terrorism models, but insufficient and unproven data still hamper their progress.  The inability of the private sector to fully assume the role of providing terrorism coverage was readily evident last week, when the ratings firm Fitch Ratings sent a shiver down Wall Street’s spine by announcing it would be required to downgrade many commercial mortgage transactions if TRIA were not extended.  Should Congress fail to extend the federal backstop, the market would likely regress to its tenuous position immediately following 9/11, where terrorism coverage became prohibitively expensive and difficult to obtain, and commercial lenders – unable to assume the risk of a casualty resulting from an attack — withdrew from real estate and construction projects.  Such a scenario would have broad repercussions across our economy, stifle economic growth, and exacerbate the current credit crunch.

Just as the World Trade Center has come to symbolize 9/11, the site itself now speaks volumes to the need to extend TRIA.  According to a study by Willis North America, only $750 million of terrorism insurance is available in lower Manhattan — much too little to provide coverage for the $20 billion in new development occurring at the World Trade Center site and adjacent areas.  Should TRIA expire, Manhattan would suffer a serious blow to its redevelopment efforts, both in economic and psychological terms. 

Further, businesses now in the market for terrorism risk insurance coverage are increasingly being told that there will be none at year’s end – and existing policies contain sunset clauses that void terrorism coverage after the federal program expires on Dec. 31, 2007.  Such developments raise concerns about the potential for large-scale business disruptions and the very real threat of exposing our economy to unnecessary catastrophic risk – the very results sought by terrorists.

So the fundamental question before Congress cannot be, “Should we reauthorize TRIA?”; rather, it must be one of “how long.”  Proponents of the House-passed fifteen-year extension are correct in noting that terrorism, by definition, is wildly unpredictable.  If it were not, Homeland Security would employ scores of underwriters as opposed to security analysts.  But proponents err when they then suggest that the unpredictability of terrorism necessitates a more permanent TRIA program.  In fact, the random and erratic nature of the terror threat is the strongest argument against a fifteen-year duration for TRIA, not a justification for the program’s permanence.  As the terror threat evolves, and as the private terror insurance market continues to develop, Congress must be required to revisit the program periodically to evaluate its efficacy and relevance.  A program extension through 2022 fails to force Congress’s hand to revisit TRIA.

Nonetheless, questions over the duration of the program must not stand in the way of the imperative of extending TRIA.  Compromise is at the heart of the legislative process.  With movement in the Senate on a bill extending the underlying program for seven years – a duration similar to House Republicans’ original compromise recommendation of six to eight years – reconciliation on TRIA cannot be far behind.

The overarching need for TRIA is as apparent today as it was five years ago – to serve as a backstop amid an inadequate private market.  For many in the intelligence community, the question is not “if” there will be another large-scale terrorist attack on our nation, but “when.”  The potential for another catastrophic terrorist attack is frightening enough, but hamstringing our nation’s ability to recover financially from it is unthinkable and an abdication of our nation’s fiduciary responsibilities. 

Al-Qaeda did not choose the Twin Towers among its targets in a vacuum.  They were glaring symbols of America’s miraculous economy and competitive hegemony in the global market, and when they fell, the terrorists assumed devastation to our spirit and our financial future.  They were wrong.  While it may take generations before Americans absolve themselves of their grief from 9/11, America’s insurance industry recovered quickly, and will be guaranteed perseverance, thanks in no small part to TRIA.

Pryce is a member of the House Financial Services Committee.