The last ten years have been a windfall for insurance companies: first with the post-9-11 legislation and then Obamacare. Now however, lobbyists are threatening to cancel the Super Bowl unless Congress renews the TRIA—the Terrorism Risk Insurance Act to cover insurers so that they will not have to actually pay out for any costs associated with terrorism. There may be good reasons for the bill coverage but there are also some unanswered questions. Do not expect too many answers however.
TRIA was enacted in 2002 the 9/11 terrorist attacks. The insurance companies secured a promise to cover costs for insurance policies that payments related to terrorism. It was renewed in 2005 and in 2007, but was set to expire on December 31st. With the 9-11 attacks over a decade old, some have argued for a return to market control and an end of the subsidy. However, the lobbyists have an ace in the hole. They have the Super Bowl. It does not matter that a few years ago, FIFA was able to work out a special financial arrangement with insurers to hold the World Cup.
With both the insurance industry and the NFL joined, this could be over before it starts. The NFL has proven the champion at acquiring special deals from both the government and private companies. The “non-for-profit” NFL is aiming at a goal of $25 billion in annual revenues. The NFL has organized with 80 business groups nationwide to form the Coalition to Insure Against Terrorism (CIAT) to urge Congress to fund reauthorization of the TRIA legislation. With only the public’s tax money on the other side, there is not likely to be much of a debate. However, the bill will obligate the public to a wide array of businesses for any costs associated with terrorism. The bill obligates us to cover a portion of insured losses above $27.5 billion, up to $100 billion.
Insurers are saying that unless Congress renews the legislation, they have a right to cancel terrorism insurance policies after Jan. 1 . . . including the one covering the Super Bowl.
Now, I admit that the fact that the Bears are not playing in the Super Bowl creates a slight conflict. However, shouldn’t there be something akin to a debate over an obligation for as much as $100 billion? I am not sure that this risk should not be handled in the market. After all, insurance is based on mathematical or actuarial models of probabilities for payout. It is considered an efficient system for valuing risk. I am not sure why this system is not sufficient. Of course, the Congress could always bailout industry on a case-by-case basis as they have in the past. The interesting dimension of this issue is that the public has generally opposed bailout but this legislation is structured in a less obvious way as simply as “cost-sharing” provision. The industry may be able to prevail on the merits but this is an industry that is supposed to be based on the prediction of risk. Nevertheless, war insurance coverage has precedent in our system and other countries.
I am not sure of the merits of this issue but I would sure like to explore them rather than dealing with a demand with a proverbial gun at the head of the Super Bowl. That seems a bit too much like . . . well . . . terrorism.
Business Week has strongly called for passage.