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.
” A war exclusion is righteous.”
The insurance companies don’t need the government to step in in order to exclude acts of war or terrorism from their policies. They can exclude war and terrorism from their policies all by them selves.
It is then up the to clients to decide to continue without insurance or to self insure.
What exactly is the big deal. The insurance companies can and do exclude what ever they want to.
Obviously we need to have the federal gov’t run the NFL.
“Obviously we need to have the federal gov’t run the NFL.”
Considering the success of the NFL maybe we ought to let Goodell run the government.
We have privatized other government functions, why not the executive branch?
I worked for insurance companies. They are soulless b@stards. But, we do need them. We just can’t let them call all the shots. A war exclusion is righteous.
This is another reason civilized countries need to convene in a new Geneva Convention and hash out rules for this asymmetrical war that will be waged for decades. It looks like the Obama/Holder notion that terrorists are just common criminals like bank robbers or car thieves will die when they leave office.
BFM: Or health insurance. Or medical care. Or education. Or automobile manufacturing.
Insurance has historically had exclusions for acts of war. There is nothing new about that. That they are now including terrorism is logical. Even though terrorism is not an official “war” according to the rules of engagement and rules of war or even aspects of the Geneva Convention, it carries the same risk of loss to the insurance companies. War is a risk that is beyond the capabilities of an insurance company to cover losses. This has been recognized for decades.
I don’t blame the insurers. They should just cancel the policies and let the game be canceled….or let the NFL take the risk.
I’m also with Paul. We don’t follow professional football and haven’t watched the Super Bowl, on purpose, for at least 15 years. We only follow the Ducks, because that is a hometown team for my hubby.
The folks have to pay for the insurance so the owners can pay outrages salaries to the players for playing a game. It’s the same all the other pro sports
No Superbowl. Say it loud! I am broke and I am proud.
Our bi-partisan Congress just guaranteed hundreds of trillions (do the research) not billions of derivatives to the largest banks in the world. For example Goldman Sachs has assets of 18 billion but unfunded liabilities in derivatives of 40 trillion. Yes you read that correctly. And guess who just guaranteed them against loss?
Why not do the same for insurance companies?
Simply disgusting
The Super Bowl is here this year, but since I do not follow professional football, I do not care. If the NFL take a hit, so be it.
BFM: I’m saying that the money will be collected by the insurance companies up front and held until the terrorist attack. The government won’t build a reserve. So, if everyone is convinced that the government will protect us from terror, then no one has to pay a cent. Until the government fails. If you want the insurance companies to cover the losses of a terrorist attack, maybe you’d be fine putting them in charge of preventing terrorist attacks. And again, any money the owners or the stadiums or the insurers need comes out of your pocket, not theirs.
” If you want the insurance companies to cover the losses of a terrorist attack, maybe you’d be fine putting them in charge of preventing terrorist attacks. ”
That sounds like a non sequitur to me. Why would I want insurance companies to be in charge of preventing terrorist attacks? Do they have any experience in LE or military operations?
All I am suggesting is that the relation between insurance companies and their clients should be market driven for most aspects such as premiums. And the clients, such as the NFL can pass on what ever part of the premium in the form of higher ticket prices that the public will allow.
The ability to force customers to pay for things like insurance premiums relates to the elasticity of demand. If lot of people want the high priced tickets then the NFL can pass on the insurance premium. If few people want the high priced tickets then the NFL can pass on much less of the insurance premium and their profits will be correspondingly less. That is the way the market works.
Why should tax payers help ensure the profits of insurance companies and the NFL for an entertainment that only some people choose to enjoy.
Finally, if the insurance companies don’t want the deal then let the NFL decide to run the entertainment without insurance or to self insure. That is their business decision.
Why would anyone suggest the government ought to interfere with the business decisions of insurance companies and their clients in the case of a high profit entertainment project?
I agree with the first post. Close it down then.
FrigDaSuperBowl.com
If this “Super Bowl” is supposed to be so “Super”, why do taxpayers have to cover costs? Can’t they get advertisers to pay? Oh wait, that would be too much like a capitalist idea for the NFL that more akin to a 15th century king.
So, let’s see…. The Feds fail to detect the suicide bomber; State police fail; local police fail. Bomber gets past them all, gets past the “security gate”, manned by minimum wage workers who sell sodas after kickoff. Suicide bomber gets into the stadium, sets himself off and kills/maims 100 people.
And you want Prudential to pay for the 1,000+ lawsuits filed against the stadium? What is 1,000 times $10,000,000?
OK, so let’s say Prudential is legally liable. They have to have financial reserves, mostly from the premium(s) paid by the stadium(s). You think the stadium owner will eat that cost? Nope. You think $10 beer is expensive? $300 seats? $20,000 seat licenses? Wait until the stadium owner needs to raise maybe $100,000,000 to pay the “terrorist premium”. $100 beer.
But wait!!! On this very blog, people who don’t understand capitalism, finance or economics will complain about the high prices and how only the 1% can go to the game and how rich the owners must be … blah, blah. All that money sits in insurance company’s investment accounts waiting for the various government agencies to fail to stop a man with a bomb from getting to the stadium.
I’m going to repeat this slowly: the money to pay the insurance premium comes from us; you and me. You want the insurance company to pay the bazillion dollars in claims? Dreamer. It’ll come out of your pocket.
” You want the insurance company to pay the bazillion dollars in claims? Dreamer. It’ll come out of your pocket.”
Isn’t that the way the market is supposed to work?
Are you suggesting that part of the market should be that we all get taxed to help the insurance companies, and a private, profit making enterprise like a group of professional sports teams?
Finally a free market solution we can all support.
If the NFL and the insurance companies can’t make a deal then let it go. If the insurance premium is too high then no deal. That is the way it is supposed to work.
Normally, I hate insurance companies for being rapacious, but this is simply another form of war insurance. There is no possible way for any company to carry the whole risk of such a vast project and it liabilities. If folks would look at their health insurance policies, as I did when I was employed by an airline, the policy excluded an act of war or terrorism and I was on my own if I were killed or injured as a result of an act of terrorism.
I think quantifying the risk, predicting the probability of loss, would be quite difficult if not impossible. Not everything is insurable – contrary to what people believe. And there are some areas where the Federal Government has to assume the risk in order to make the insurance available – example, Flood Insurance. Make the Insurance Companies pay a tax, or premium if you will, to the Federal Government. I’m sure the Feds will put the money in a lock box for possible future claims……..ha!
I like Mike (‘s solution).
Cryin’ out loud! Let ’em cancel the damn thing. They will never carry through with the threat so this demand can be safely ignored. Fandom would lynch Goodell and some insurance presidents to boot if they cancelled. And if the game was cancelled there would be more time for quality family time. Amen.