Conservative Victory On Terrorism Insurance

11.19.2014 | Roberto Escoban |

In a Congress where conservative victories in the House were buried by the obstinate Senate Majority Leader Sen. Harry Ried (D-NV), the Chairman of the House Financial Services Committee, Rep. Jeb Hensarling (R-TX) appears ready to achieve what many others could not–changing a law in a more free market direction. By demanding reforms to the Terrorism Reinsurance law that is set to expire, Hensarling appears to be on the verge of a conservative victory–and it happened right under Reid’s nose.

After the terrorist attacks on September 11, 2001, banks, financial services firms and other lenders began demanding that construction projects be insured against terrorism. Insurance companies, however, were not prepared to properly quantify and measure the likelihood of another attack. Unlike life, property and other forms of insurance, where hundreds of years of data can determine the risks and payout tables, terrorism insurance was a shot in the dark. Faced with the choice of writing insurance contracts without knowing the potential costs or making a mistake that would put companies out of business, the industry stopped writing terrorism insurance. Congress stepped in by adopting the Terrorism Risk Insurance Act of 2002 (TRIA). TRIA created a financial backstop for companies in case of a new attack. Companies began writing policies again, and the construction industry went back to work.

After being renewed twice, the law, once again, expires at the end of the year. Members of Congress recognize the importance of not pulling the plug on the program. Hensarling recently wrote, “There remains a need for a federal backstop against those catastrophic acts of terrorism that cannot be reasonably modeled or mitigated and whose size truly impacts our economy.” He is right but he also recognizes the need to encourage the creation of a functioning terrorism insurance market.

Thanks to his undaunted insistence, the Senate-passed version of the legislation contains many of the reforms he has demanded. He would, of course, love to have even more reforms but the Senate has refused to go further and even many Republicans in the House refuse to risk the defeat of the bill in order to achieve more.

Good conservative legislating often requires a skill not present from many Republicans — a need to understand the concept of incrementalism. In football terms, Hensarling has driven the ball down the field. He faces a fourth down and ten yards to go from the twenty-yard line. Should he risk everything or accept the field goal?

Risking it all to achieve a few more demands could send Americans dependent on construction work to the unemployment line as expiration of the TRIA law would undoubtedly send shockwaves through the industry. Projects and investment would grind to a halt.

Henserling has done yeoman’s work pushing free market reforms. Thanks to his demands, over the course of the next seven years, a market that limits taxpayer exposure should begin anew. That is something to be proud of.