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TERRORISM THREATS AND

THE INSURANCE MARKET

JOINT HEARING

BEFORE THE

SUBCOMMITTEE ON 

OVERSIGHT AND INVESTIGATIONS

OF THE

COMMITTEE ON FINANCIAL SERVICES

AND THE

SUBCOMMITTEE ON 

INTELLIGENCE, INFORMATION SHARING, 

AND TERRORISM RISK ASSESSMENT

OF THE

COMMITTEE ON HOMELAND SECURITY

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

JULY 25, 2006

Printed for the use of the Committee on Financial Services and the Committee 

on Homeland Security

Committee on Financial Services 

Serial No. 109–111

Committee on Homeland Security 

Serial No. 109–93

(

(II)

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa 

RICHARD H. BAKER, Louisiana 

DEBORAH PRYCE, Ohio 

SPENCER BACHUS, Alabama 

MICHAEL N. CASTLE, Delaware 

EDWARD R. ROYCE, California 

FRANK D. LUCAS, Oklahoma 

ROBERT W. NEY, Ohio 

SUE W. KELLY, New York, Vice Chair 

RON PAUL, Texas 

PAUL E. GILLMOR, Ohio 

JIM RYUN, Kansas 

STEVEN C. LATOURETTE, Ohio 

DONALD A. MANZULLO, Illinois 

WALTER B. JONES, JR., North Carolina 

JUDY BIGGERT, Illinois 

CHRISTOPHER SHAYS, Connecticut 

VITO FOSSELLA, New York 

GARY G. MILLER, California 

PATRICK J. TIBERI, Ohio 

MARK R. KENNEDY, Minnesota 

TOM FEENEY, Florida 

JEB HENSARLING, Texas 

SCOTT GARRETT, New Jersey 

GINNY BROWN-WAITE, Florida 

J. GRESHAM BARRETT, South Carolina 

KATHERINE HARRIS, Florida 

RICK RENZI, Arizona 

JIM GERLACH, Pennsylvania 

STEVAN PEARCE, New Mexico 

RANDY NEUGEBAUER, Texas 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

CAMPBELL, JOHN, California 

BARNEY FRANK, Massachusetts 

PAUL E. KANJORSKI, Pennsylvania 

MAXINE WATERS, California 

CAROLYN B. MALONEY, New York 

LUIS V. GUTIERREZ, Illinois 

NYDIA M. VELA ́ ZQUEZ, New York 

MELVIN L. WATT, North Carolina 

GARY L. ACKERMAN, New York 

DARLENE HOOLEY, Oregon 

JULIA CARSON, Indiana 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

BARBARA LEE, California 

DENNIS MOORE, Kansas 

MICHAEL E. CAPUANO, Massachusetts 

HAROLD E. FORD, JR., Tennessee 

RUBE ́ N HINOJOSA, Texas 

JOSEPH CROWLEY, New York 

WM. LACY CLAY, Missouri 

STEVE ISRAEL, New York 

CAROLYN MCCARTHY, New York 

JOE BACA, California 

JIM MATHESON, Utah 

STEPHEN F. LYNCH, Massachusetts 

BRAD MILLER, North Carolina 

DAVID SCOTT, Georgia 

ARTUR DAVIS, Alabama 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

MELISSA L. BEAN, Illinois 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin, 

BERNARD SANDERS, Vermont

Robert U. Foster, III, Staff Director 

(III)

SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS

SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman 

EDWARD R. ROYCE, California 

STEVEN C. LATOURETTE, Ohio 

MARK R. KENNEDY, Minnesota 

SCOTT GARRETT, New Jersey 

J. GRESHAM BARRETT, South Carolina 

TOM PRICE, Georgia 

MICHAEL G. FITZPATRICK, Pennsylvania 

GEOFF DAVIS, Kentucky 

PATRICK T. MCHENRY, North Carolina 

MICHAEL G. OXLEY, Ohio 

LUIS V. GUTIERREZ, Illinois 

DENNIS MOORE, Kansas 

CAROLYN B. MALONEY, New York 

STEPHEN F. LYNCH, Massachusetts 

ARTUR DAVIS, Alabama 

EMANUEL CLEAVER, Missouri 

DAVID SCOTT, Georgia 

DEBBIE WASSERMAN SCHULTZ, Florida 

GWEN MOORE, Wisconsin 

BARNEY FRANK, Massachusetts 

COMMITTEE ON HOMELAND SECURITY 

PETER T. KING, New York, Chairman 

DON YOUNG, Alaska 

LAMAR S. SMITH, Texas 

CURT WELDON, Pennsylvania 

CHRISTOPHER SHAYS, Connecticut 

JOHN LINDER, Georgia 

MARK E. SOUDER, Indiana 

TOM DAVIS, Virginia 

DANIEL E. LUNGREN, California 

JIM GIBBONS, Nevada 

ROB SIMMONS, Connecticut 

MIKE ROGERS, Alabama 

STEVAN PEARCE, New Mexico 

KATHERINE HARRIS, Florida 

BOBBY JINDAL, Louisiana 

DAVE G. REICHERT, Washington 

MICHAEL T. MCCAUL, Texas 

CHARLIE DENT, Pennsylvania 

GINNY BROWN-WAITE, Florida 

BENNIE G. THOMPSON, Mississippi 

LORETTA SANCHEZ, California 

EDWARD J. MARKEY, Massachusetts 

NORMAN D. DICKS, Washington 

JANE HARMAN, California 

PETER A. DEFAZIO, Oregon 

NITA M. LOWEY, New York 

ELEANOR HOLMES NORTON, District of 

Columbia 

ZOE LOFGREN, California 

SHEILA JACKSON-LEE, Texas 

BILL PASCRELL, JR., New Jersey 

DONNA M. CHRISTENSEN, U.S. Virgin Islands 

BOB ETHERIDGE, North Carolina 

JAMES R. LANGEVIN, Rhode Island 

KENDRICK B. MEEK, Florida

SUBCOMMITTEE ON INTELLIGENCE, INFORMATION SHARING, AND 

TERRORISM RISK ASSESSMENT

ROB SIMMONS, Connecticut, Chairman 

CURT WELDON, Pennsylvania 

MARK E. SOUDER, Indiana 

DANIEL E. LUNGREN, California 

JIM GIBBONS, Nevada 

STEVAN PEARCE, New Mexico 

BOBBY JINDAL, Louisiana 

CHARLIE DENT, Pennsylvania 

GINNY BROWN-WAITE, Florida 

PETER T. KING, NEW YORK (Ex Officio) 

ZOE LOFGREN, California 

LORETTA SANCHEZ, California 

JANE HARMAN, California 

NITA M. LOWEY, New York 

SHEILA JACKSON-LEE, Texas 

JAMES R. LANGEVIN, Rhode Island 

KENDRICK B. MEEK, Florida 

BENNIE G. THOMPSON, Mississippi (Ex Officio) 

(V)

C O N T E N T S 

Page 

Hearing held on: 

July 25, 2006 ..................................................................................................... 1

Appendix: 

July 25, 2006 ..................................................................................................... 29

WITNESSES 

TUESDAY, JULY 25, 2006

DeBoer, Jeffrey D., President and CEO, The Real Estate Roundtable ............... 13

Fleming, Terry, Director of External Affairs, Risk and Insurance Management 

Society ................................................................................................................... 9

Lewis, Christopher M., Vice President, Alternative Market Solutions, P&C 

Capital Management, The Hartford Financial Services Group, Inc. ............... 14

Ulrich, Peter, Senior Vice President, Model Management, Risk Management 

Solutions, Inc. ....................................................................................................... 11

APPENDIX 

Prepared statements: 

DeBoer, Jeffrey D. ............................................................................................ 30

Fleming, Terry .................................................................................................. 48

Lewis, Christopher M. ...................................................................................... 66

Ulrich, Peter ...................................................................................................... 70

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Kelly, Hon. Sue W.: 

Statement of the American Insurance Association ........................................ 80

Statement of the Independent Insurance Agents & Brokers of America .... 88

Statement of the RAND Corporation .............................................................. 97

Dent, Hon. Charlie: 

Responses to questions submitted to Peter Ulrich ........................................ 104

(1)

TERRORISM THREATS AND 

THE INSURANCE MARKET 

Tuesday, July 25, 2006

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON OVERSIGHT

AND INVESTIGATIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

AND SUBCOMMITTEE ON INTELLIGENCE, 

INFORMATION SHARING, AND TERRORISM

RISK ASSESSMENT, 

COMMITTEE ON HOMELAND SECURITY, 

Washington, D.C. 

The subcommittees met, pursuant to notice, at 10:00 a.m., in 

room 2128, Rayburn House Office Building, Hon. Sue Kelly [chairwoman of the Subcommittee on Oversight and Investigations] presiding. 

Present: Representatives Kelly, Royce, Kennedy, Garrett, Dent, 

Simmons, Gutierrez, Moore of Kansas, Maloney, Cleaver, Scott, 

Frank, Lofgren, Lowey, and Thompson. 

Also present: Representatives Israel and Crowley. 

Chairwoman KELLY. This hearing will come to order. Without objection, all members’ opening statements will be made a part of the 

record. 

Today, this joint hearing of the Subcommittee on Oversight and 

Investigations and the Subcommittee on Intelligence, Information 

Sharing, and Terrorism Risk Assessment is going to examine terrorism threats and the insurance market. 

We are fast approaching the 5th anniversary of the September 

11, 2001, attacks on our country. That series of attacks on New 

York and Washington, D.C., cost this country more than $60 billion 

in losses. Hundreds of billions more was lost in the economic activity from the fear and uncertainty unleashed by these acts of terror. 

In response to that attack, Congress passed the Terrorism Risk Insurance Act (TRIA) to ensure the supply of insurance against terrorism in areas where that supply had been destroyed by the attacks. 

Last December, Congress authorized TRIA for 2 additional years 

while a permanent solution to the problem of terrorism insurance 

supply was developed by insurance providers, consumers, and government stakeholders. Insurance supply has been a focus of these 

efforts, but insurance demand created the need. Too often, the debate on terrorism insurance focuses on supply side questions and 

forgets the needs that drove us to this point. 

2

In the 5 years since the September 11th attacks, efforts to perpetrate another large-scale terrorist activity within the United 

States have not succeeded, but the threat remains. The U.S. Government and the private sector must operate based on a certainty 

of a terrorist attack in the near to medium term. We do not know 

what form the next attack will take but we have every reason to 

believe our enemies are seeking to inflict mass casualties, mass 

economic attacks, and multiple targets to maximize damage and 

weaken the first response capacities. 

The terrorist risk, while unknown, is not outside the scope of reason, though through threat assessment and correlation with previous attacks, the size and scope of future attacks can be imagined. 

Risk can also be measured both geographically and countrywide. 

Countries and companies both can measure risk. 

Pre-attack mitigation can also reduce vulnerabilities; modeling 

an assessment of risk can create a situation that allows the demand for terrorism insurance to be quantified. Modeling of terrorism risk must be based on accurate data and the assessments 

must not be limited by a failure of imagination. 

Two examples from my home State of New York are illustrative. 

The Department of Homeland Security used the National Asset 

Data Base to help assess risk and thus share funds with vulnerable 

communities. Unfortunately, this database was full of activities 

such as petting zoos, popcorn packers, pizza parlors, and, of course, 

the famous Mule Day in Tennessee. While the Homeland Security 

Department disputes the notion that this database is flawed, no 

one disagrees that local politics help create a list of negligible utility. 

Failures of imagination are equally dangerous. Our enemies can 

think and they have constantly shown that they are willing to try 

new attack methods and target sets. Accepting the status quo for 

recognizing the threat is no longer good enough. For instance, in 

my district, the Indian Point Nuclear Power Plant sits on the Hudson River in the middle of the largest urban area in the country. 

No one at the Department of Homeland Security had ever questioned whether an attack by a high-speed boat was possible despite 

suggestions that Al Qaeda has shown an increasing interest in the 

sea as an attack vector. When I asked the Coast Guard admiral responsible for planning to meet the threat about this, he admitted 

that this was a threat that was not being assessed. What other 

threats are we not preparing for because we have not asked the 

proper questions? How do unaddressed threats change discussions 

of what needs to be insured and how much insurance we need? 

I now yield to the ranking member from Illinois for his opening 

statement. We are raising questions here. We hope that this panel 

will help us find some answers. 

Mr. Gutierrez? 

Mr. GUTIERREZ. Good morning and thank you, Chairwoman 

Kelly, and Chairman Simmons, who will join us shortly. I am 

pleased to be here today along with our colleagues on the Homeland Security Committee to review and discuss the effects of terrorism on the insurance market. A strong, viable insurance market 

is vital to the overall health of our national economy. Nearly 5 

years ago, the stability of the insurance industry was put in jeopVerDate 0ct 09 2002 16:39 Mar 02, 2007 Jkt 031540 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 K:\DOCS\31540.TXT HFIN PsN: TERRIE
3

ardy when insurers and re-insurers lost more than $30 billion as 

a result of the 9/11 attacks. Following the substantial losses, insurers were unable to make terrorism insurance available, which left 

many of our Nation’s businesses vulnerable to unacceptable financial risk. In response, Congress enacted the Terrorism Risk Insurance Act or TRIA to provide a temporary, limited Federal backstop 

in the event of another terrorist attack in the United States. I am 

a strong supporter of TRIA and believe it is necessary to provide 

stability for our economy in the post-9/11 world. 

I was pleased that we passed legislation late last year that extended TRIA until the end of 2007, but the 2007 deadline is only 

17 months away. And at this point, the market is not yet stabilized, and the need for TRIA remains. I do not, however, believe 

that TRIA is perfect in its current form; some changes should be 

made to improve the legislation. We should be mindful that TRIA 

is not intended to be a permanent program and that eventually the 

private market must adjust. I do not want to see the Federal Government as a permanent re-insurer of last resort, at least not at 

the liability levels that exist under the current version of TRIA. 

In order for this to happen, however, the industry needs to make 

substantial progress with its prediction models. I would like to hear 

from our industry witnesses what they believe are the specific 

weaknesses in the current prediction models, and any suggestions 

they may have to improve the ability to access and price terrorism 

risks. From our risk management experts, I am interested in hearing about the progress they have made in making models more accurate and what information they believe they need to further improve accuracy. For example, in written testimony, RMS proposes 

allowing the insurance industry or risk management experts access 

to classified information. I am curious about how this information 

can be kept secure while at the same time used to improve prediction models. Finally, I am interested in hearing our witnesses’ 

opinions on improvements to TRIA if and when another extension 

is considered. The bottom line is terrorism insurance must continue 

to be available in a comprehensive and affordable manner. Whether that includes TRIA, another form of Federal backstop, or the private sector assuming full liability remains to be seen. What we do 

know is that strong markets require certainty and 17 months is a 

short time in the forward-looking insurance industry. Therefore, we 

must all act with deliberate speed in developing a more long-term 

solution. 

I yield back the balance of my time. 

Chairwoman KELLY. Thank you, Mr. Gutierrez. I yield to the 

gentleman from Connecticut. 

Mr. SIMMONS. Thank you, Madam Chairwoman, and thank you 

everybody for being here today. As chairman of the Committee on 

Homeland Security’s Subcommittee on Intelligence, Information 

Sharing, and Terrorism Risk Assessment, I understand how vital 

information sharing and risk assessment can be to understanding 

the nature of the terrorist threat. The insurance industry faces 

many challenges when attempting to model terrorism risks. As a 

private sector entity, one of the key challenges is getting information on the nature of the threat. In simplest terms, risk assessment 

is the result of weighing vulnerability, consequence, and the likeliVerDate 0ct 09 2002 16:39 Mar 02, 2007 Jkt 031540 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 K:\DOCS\31540.TXT HFIN PsN: TERRIE
4

hood that an event may occur. But without information on the nature of the threat, measuring risk becomes extremely difficult. 

Often information related to terrorism is sensitive, classified, and 

locked in a vault somewhere. And while this secrecy culture is 

slowly changing, some information on threats and vulnerabilities 

must remain secret. 

Many in private industry, including the insurance industry, believe that they lack some of the very basic terrorist-related information that would help them evaluate the likelihood of future terrorist events. So one of the things that I would like to understand, 

and that I hope our witnesses can help us to understand here 

today, is where do you get your information? Do you rely on open 

sources of information, for example? And what kind of information 

could you use from the Federal Government that might enhance 

your capabilities of assessing risk? 

In addition to the difficulties associated with access to information, measuring terrorism risk is, by its very nature, more difficult 

than measuring the risk of a natural disaster. I live in Connecticut 

and we have hurricanes. Hurricanes have no motives—they come, 

they damage, and they go. But terrorists are different. They rely 

on secrecy and unpredictability to accomplish their task and even 

a seasoned intelligence professional with access to our Nation’s 

most compartmented secrets may or may not be successful in predicting where terrorists will strike. 

In order to play their part in this country’s counterterrorism mission, private industry must rely on risk assessment to determine 

what kinds of protective measures should be taken at their facilities and what kind of insurance should be purchased for their most 

important assets. 

So we look forward today to hearing from our witnesses and hope 

that they can shed further light on how to address some of these 

concerns. I think you all for being here. I thank Chairwoman Kelly 

for calling this important hearing, and I yield back. 

Chairwoman KELLY. Thank you. I yield now to the ranking member from California. 

Ms. LOFGREN. Thank you, Madam Chairwoman, and Chairman 

Simmons. As we know, the Committee on Homeland Security has 

jurisdiction over issues relative to homeland security under the 

House rules and nowhere in the House rules is there an explicit or 

implicit mention of the Committee on Homeland Security’s jurisdiction over insurance. I am raising this issue to point out striking inconsistencies in the interpretation of the Committee on Homeland 

Security’s jurisdiction. 

On April 6th of this year, I sent Mr. Simmons and Chairman 

King a letter explaining why I believe that the Committee on 

Homeland Security has jurisdiction over matters involving the National Security Agency, homeland security, and potentially illegal 

eavesdropping by the NSA. In an April 25th response to my letter, 

Mr. Simmons and Chairman King disagreed that the Committee on 

Homeland Security had jurisdiction over the potentially illegal 

eavesdropping by the NSA. As Chairman King stated in his letter, 

‘‘The House rules empower the Committee on Homeland Security 

to review and study on a continuing basis all government activities 

relating to homeland security, including the interaction of all deVerDate 0ct 09 2002 16:39 Mar 02, 2007 Jkt 031540 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\31540.TXT HFIN PsN: TERRIE
5

partments and agencies with the Department of Homeland Security.’’ Nevertheless, Chairman King seemed to have parsed words 

to conclude that the Committee on Homeland Security does not 

have jurisdiction over eavesdropping by the NSA. It seems to me 

that if the Subcommittee on Intelligence does not have jurisdiction 

to take a look at the NSA and the potential illegal activities that 

they are engaging in, it is quite a stretch to say that we have jurisdiction over insurance. So I am hoping, and formally will be asking 

with a later letter, that the issue of review of NSA and the Intelligence Subcommittee’s jurisdiction be revisited by the chairman of 

the full committee as well as the chairman of the subcommittee. 

And I believe that while this insurance issue certainly is of interest 

to the committee of jurisdiction, certainly the committee of jurisdiction over intelligence should be taking up the NSA matter. And I 

yield back. 

Chairwoman KELLY. Thank you. I will turn now to the ranking 

member of the full committee, Mr. Frank. 

Mr. FRANK. I thank the gentlewoman. And let me say preliminarily that I am no longer on the Homeland Security Committee 

because when it became a standing committee in the House, by 

Democratic Caucus rules as the ranking member of this full committee, I wasn’t eligible to serve, but I was interested, and I am 

supportive of the gentlewoman’s concern. I would say I think probably the response you would get from some quarters is that the 

reason that the Committee on Homeland Security doesn’t have any 

jurisdiction over the NSA wiretapping is that in the opinion of the 

Administration, Congress doesn’t have any jurisdiction over this. 

So the lesser is shut out by the greater in this case. And if they 

don’t think it is any of our business, then it is no committee’s business. 

I am pleased that the two committees are working together in 

this hearing. We have too much turf consciousness in this Congress 

and sometimes that gets in the way of substantive considerations. 

I think it is a good idea that we are having this joint hearing. And 

I want to talk particularly about the public policy rationale for terrorism risk insurance. I want to address some of my friends in the 

consumer movement, some of whom have been critical of this. I 

was struck, as I read through the testimony—because I am not 

going to be able to stay, as we have bills on the Floor from this 

committee today—by Mr. Lewis’ remarks about the public policy 

implications here. I want to stress that in addition to the argument 

that after all, in many cases when you are the insured, we tell you 

that you have an obligation to reduce your risk. You have an obligation to reduce your risk of theft, of fire, and of vandalism. However, it is very hard to tell private sector people to reduce their risk 

from terrorism. Now I know they try. I wish sometimes they 

wouldn’t. I think it has become a sign of ego that you make it hard 

to get into your building. It cannot be that every office building in 

Washington and New York is a target for terrorism, but I think if 

you don’t have someone there to harass your visitors, then you feel 

like you are not important. And if no one wants to blow you up, 

then you must not be a big deal, and therefore you have somebody 

who is sitting there and looking at people’s driver’s licenses to no 

practical effect whatsoever if there was a serious problem. 

6

But there is nothing you can do to protect yourself against being 

the victim of terrorism. You might be able to mitigate the effects 

somewhat, but that is the minor part of it. And that reduces the 

argument that the cost of this should be borne by the insured because you are asking people to bear a cost over which they have 

no control. But even more than that, as people have indicated, and 

the gentleman from Connecticut indicated, we are talking here 

about a situation where there are bad people and elements within 

the United States consciously seeking to inflict harm on the United 

States. To the extent that we allow the individual victims to bear 

the cost, we are implicitly cooperating with the terrorists. That is, 

the cost of terrorism ought to be borne by the whole country, and 

we should not allow terrorists to pick and choose which Americans 

are going to bear the cost. We should not allow them to say, well, 

the big cities will be more vulnerable. And, again, when you take 

into account the fact that we have a situation where the victims 

may not have a very good ability to stave off the damage and 

where it is a conscious decision by evil people to inflict harm on 

us, then we ought to all be willing to bear the cost. I don’t want 

to have a situation where, if a terrorist attacks some place in 

America, the rest of us can say, ‘‘Boy, we sure are lucky that we 

weren’t hit. That poor so-and-so has to bear the cost.’’ No, let’s say 

that America has been attacked and we will together bear the cost 

of that. 

Now, obviously, there are some cases in which you can’t do that; 

nobody can share the loss of life or other factors. But to the extent 

that we can make these costs go across the board, we ought to do 

that. Now there is also, of course, a particular economic effect, it 

is not just the whole economy as people mentioned, but when we 

were doing terrorism risk insurance and we were encountering, I 

think, a kind of free market fundamentalism, I don’t think it is a 

violation of the principles set forward by Adam Smith to take into 

account a phenomenon, terrorist bombings, that he could not possibly have known. This is not something that the market was ever 

intended to deal with. But it does not fall equally on the whole 

country. It is obviously particularly a problem for people who would 

be doing large projects in big cities. And I do not think we ought 

to say that in addition to the other problems that some of our bigger cities have, that we ought to leave them entirely on their own 

for bearing the cost of terrorism risk insurance. And it is very 

much, as it has been presented to us, a big city issue. The Department of Homeland Security’s lists of terrorist targets notwithstanding, there aren’t going to be that many amusement parks outside that are going to be targeted. 

So I think there was every public policy reason for us to go forward with this. It is a national obligation to help people respond 

to a threat that is against the whole Nation and against which they 

cannot be expected themselves to defend. I think we did the right 

thing in going forward with terrorism risk insurance. I hope we 

will put it on a permanent basis and those who inaccurately think 

that this is something that can be left to the market when no theory of the market I have ever read provides for this kind of phenomenon that we will reject their views. 

Thank you, Madam Chairwoman. 

7

Chairwoman KELLY. Thank you, Mr. Frank. Mr. Garrett. 

Mr. GARRETT. Yes, thank you, Madam Chairwoman. I was going 

to do opening remarks but the ranking member raises an interesting analysis of how we should be spreading the risk or who 

should be actually bearing it, as to whether it is a risk that you 

can insure against or not. I will just throw out this one question 

because I have also looked through some of your testimony, Mr. 

Ulrich. Risk Management Solutions makes a statement, I don’t 

want to preempt your statements here since it is a good statement, 

regarding the terrorist activity, ‘‘It isn’t a matter of if but when 

with hurricanes. And it isn’t a matter of when but how many.’’ I 

think that is an interesting analysis to go along with this. But with 

the ranking member’s comments, I agree with you as far as the 

minimalist effect that industry or individuals or insurers may do 

as far as putting that individual in front of the store or the business office, but on the other hand, there are certain cases where 

we know that elements are a higher risk. Just reading about today 

in New Jersey as to what we can do to protect tanker cars along 

the New Jersey Turnpike and whether the homeland security chief 

there says we should be building walls to protect them so you can’t 

see those tanker cars all along the turnpike so you can’t shoot them 

or whatever else and blow them up. In certain instances, you know 

that you are at a greater risk than somebody else. And from an insurance point of view, (A), should there be safety remediations and 

should risk factors come into play in that case; and (B), should we 

be looking to see whether risk premium rates should be higher for 

some individuals than others. Because I see—I will conclude on 

this—at the bottom line, looking at all your testimony, everyone 

agrees on the panel, I think, that some version of TRIA must be 

there as a backstop, but what obligation is there still on the insured in these cases, I guess, is my ultimate question? 

Thank you. I yield back. 

Chairwoman KELLY. Thank you, Mr. Garrett. Mr. Moore. 

Mr. MOORE OF KANSAS. I want to thank you, Madam Chairwoman, for convening this hearing. I do not have an opening statement. I look forward to the testimony of the witnesses. Thank you. 

Chairwoman KELLY. Thank you. Ms. Lowey. 

Mrs. LOWEY. Thank you, Madam Chairwoman, and I look forward to the testimony of the witnesses, and I will hold my comments until that time. Thank you. 

Mr. GUTIERREZ. Madam Chairwoman, I ask unanimous consent 

that Congressman Israel, who is not a member of the Oversight 

and Investigations Subcommittee, be allowed to participate in today’s hearings. 

Chairwoman KELLY. So ordered. Mr. Scott? 

Mr. SCOTT. I think we should get right to the witnesses. I will 

not have an opening statement. Thank you. 

Chairwoman KELLY. Thank you. Mr. Israel? 

Mr. ISRAEL. Thank you, Madam Chairwoman. Let me thank you 

and the ranking member for allowing me to participate in this 

hearing. As was indicated by the ranking member, I am not a 

member of this subcommittee but I did work very closely with 

Chairwoman Kelly on the full Financial Services Committee on 

TRIA, and we were able to arrive at a bipartisan consensus that 

8

has been helpful. Of course, the clock is ticking. We have 17 

months left and although I very strongly and fully support TRIA, 

and it has been one of my priorities over the past 3 years, I do not 

believe that there is much of an appetite to give TRIA yet another 

extension under the terms that it currently includes. We need to 

begin developing consensus now because, as we all know, Congress 

is not known for moving at lightning speed. So it is critically important that we begin to develop this consensus, and that folks in 

industry begin to weigh in so that we can develop a sensible policy 

in this country. 

The premise of TRIA is quite simple: An attack on this country 

is not an attack on a building. It is an attack on this country. It 

is not an attack on bricks and mortars and glass, it is an attack 

on the lives inside that building. It is not an attack on a bunch of 

companies. It is not an attack on the insurance industry. It is an 

attack on the United States of America and its citizens. And the 

Federal Government does have an obligation to help defend against 

the economic consequences of that attack. This is critically important. And I am very concerned that we not have deja vu all over 

again, in the immortal words of Yogi Berra, that as we begin to approach the deadline where TRIA will in fact expire, at the very last 

minute, suddenly people begin to scramble. That gets very messy 

when you are working against a ticking clock. It gets very messy 

in a climate of partisanship. And so I would strongly urge all concerned parties to begin working now, sooner rather than later, 

begin to weigh in with both sides of the aisle on the Financial Services Committee so that we can produce a product that keeps my 

constituents and all of my colleagues’ constituents safe from another attack. 

I want to again thank the chairwoman and the ranking member 

for their hospitality, and I yield back my time. 

Mr. GUTIERREZ. Madam Chairwoman, I ask unanimous consent 

that Congressman Crowley be allowed to participate in the hearing. 

Mr. CROWLEY. Thank you, Madam Chairwoman. I also want to 

thank you and the ranking member for holding this hearing. I 

think it is important that we get this right. It is too important for 

industry, not only in my city but throughout this country, that terrorism risk insurance and a way forward with a Federal backstop 

that is workable, that is something that encompasses the needs of 

industry as well as developers to do the work that they need to do 

to keep our economy viable. And I thank you for holding this hearing today and look forward to hearing the testimony this morning. 

Chairwoman KELLY. Thank you very much. We turn now to our 

witnesses. 

Terry Fleming is the director of Risk Management for Montgomery County, Maryland. The county’s self-insurance program 

provides property and casualty coverage for 14 agencies covering 

more than 40,000 employees. Mr. Fleming and the county’s self-insurance program have been recognized as reputational leaders by 

the American City and County Magazine. Mr. Fleming has over 35 

years experience in insurance and risk management in the public 

and private sectors. 

9

Peter Ulrich is the senior vice president of RMS’ model management team. He has been with RMS since 1993. Prior to joining 

RMS, Peter spent 8 years with Peterson Consulting. Peter earned 

a B.S. in accounting and finance from the University of California 

at Berkeley and a MBA from the University of Southern California. 

Jeff DeBoer is president and CEO of the Real Estate Roundtable, 

an organization that represents the leadership of the Nation’s top 

100 privately owned and publicly-held real estate ownership development, lending, and management firms, as well as the elected 

leaders of the 15 major national real estate industry trade associations. He also serves as co-chairman of the advisory board of the 

Rand Corporation’s Center for Terrorism Risk Management Policy 

and is chairman of the National Real Estate Organizations, a coalition of real estate trade associations working together to enhance 

the coordination of the industry’s overall Washington advocacy efforts. A native of Rapid City, South Dakota, Mr. DeBoer has earned 

a law degree from Washington and Lee University in Lexington, 

Virginia, and an undergraduate degree from Yankton College in 

Yankton, South Dakota. 

And finally, Christopher M. Lewis. I am going to yield to the gentleman from Connecticut, for the purpose of introducing our final 

witness. 

Mr. SIMMONS. I thank the Chair for that courtesy. And I am especially pleased today that Chris Lewis is with us to testify at this 

hearing. Mr. Lewis is the vice president of Alternative Market Solutions and Capital Management at the Hartford Financial Services Group and lives in the wonderful town of Tolland, Connecticut, 

which I am pleased to represent. He is also responsible for the 

Hartford’s risk management initiatives and works with policymakers on issues related to the risk of manmade and natural disasters. Prior to joining The Hartford, Mr. Lewis was managing director and global head of Advisory Services for Fitch Risk Management, and he also spent 5 years as a senior economist at the Office 

of Management and Budget where he was a member of the White 

House Working Group on Natural Disasters. Welcome, Chris. We 

look forward to your testimony. 

Chairwoman KELLY. Thank you. Now, without objection, the witnesses’ written statements will be made a part of the record, and 

you are each going to be recognized for a 5-minute summary of 

your testimony. I believe all of you understand the function of the 

small black box with the lights on the table. Please note that the 

red light doesn’t mean sum up, it means that it is time to finish 

your 5-minute statement. With that, we turn first to you, Mr. 

Fleming. And thank you all for being here. 

STATEMENT OF TERRY FLEMING, DIRECTOR OF EXTERNAL 

AFFAIRS, RISK AND INSURANCE MANAGEMENT SOCIETY 

Mr. FLEMING. Chairwoman Kelly, Chairman Simmons, and members of the subcommittees, good morning. My name is Terry Fleming. I am a director of External Affairs for the Risk and Insurance 

Management Society, RIMS, and I am also director of risk management for Montgomery County, Maryland. I am pleased to be here 

today to talk about terrorism concerns and the insurance market, 

particularly from a risk management perspective. 

10

RIMS represents commercial consumers of insurance. As the 

country’s largest professional risk management organization, RIMS 

represents nearly 4,000 industrial, service, non-profit, charitable, 

and governmental entities, including 83 percent of the Fortune 500 

companies. As a risk manager, it is my responsibility to identify exposures to financial loss that my employer might suffer and to mitigate those exposures using a variety of techniques. The principal 

techniques used to manage the terrorism exposure on the part of 

an individual company or self-insured entity are control—taking 

steps internally to reduce the threat to employees and property; retention or self-funding a portion of any loss; and the purchase of 

commercial insurance. 

Prior to September 11, 2001, terrorism was a mere blip on the 

radar screen for risk managers. We were certainly aware of the 

Oklahoma City bombing and previous attacks on the World Trade 

Center. But terrorism was not an issue prior to 9/11 quite simply 

because it was covered by virtually every insurance policy that was 

issued. After 9/11, it was covered by virtually no insurance policies 

until the enacting of the Terrorism Risk Insurance Act. And while 

I understand that this meeting is not specifically about TRIA, any 

discussion about terrorism and insurance must include the recognition that TRIA is vitally important to business and the economy. 

It is only because of TRIA that the insurance market calmed down 

and businesses can obtain terrorism insurance at affordable rates. 

As explained in detail in our written statement, unless a permanent solution to the terrorism risk is developed and implemented 

prior to the sunset of TRIA, there will be a significant impact on 

the economy. 

Along these lines, RIMS recently conducted an informal survey 

of its membership asking about terrorism insurance coverage to get 

an idea of current market conditions. Eighty-six percent of respondents to our survey said that if TRIA or some other Federal backstop were not in place, they do not believe that they would be able 

to obtain sufficient coverage for acts of terrorism at affordable 

prices. Eighty-two percent said that coverage should be available 

for nuclear, biological, chemical, and radiological—the so-called 

NBCR exposures. But 91 percent said they do not have coverage 

for this currently. Coverage for NBCR exposures is typically excluded from commercial insurance policies with the notable exception of worker’s compensation insurance. 

As an indicator of what might be expected if a TRIA-like program were not in effect, 75 percent of our member respondents said 

that prior to the extension of TRIA, their insurance policies contained coverage conditioned on the extension of TRIA. Seventy-six 

percent stated that they believe the terrorism coverage limits 

would have been decreased had TRIA not been extended, and 82 

percent believe their insurance premiums would have increased. In 

this regard, for example, one of our members reported that insurance premiums for a property they own in a large metropolitan 

area went from $200,000 in 2005, to $500,000 in 2006, with a reduction in policy limits. Furthermore, the member’s insurance 

broker has stated that insurance companies are unwilling to commit to insuring construction projects with terrorism coverage if the 

11

completion date goes beyond December 31, 2007, the sunset date 

of TRIA. 

RIMS believes that it is critical that a program be developed to 

ensure continued coverage for acts of terrorism, including NBCR 

coverage, and our written statement itemizes the principles that we 

think should apply to the development of a long-term solution. 

Thank you for the opportunity to testify on this extremely important issue. RIMS appreciates your committees holding this joint 

hearing and looks forward to working with you to address the issue 

of terrorism and insurance. Thank you. 

[The prepared statement of Mr. Fleming can be found on page 

48 of the appendix.] 

Chairwoman KELLY. Thank you very much, Mr. Fleming. 

Mr. Ulrich. 

STATEMENT OF PETER ULRICH, SENIOR VICE PRESIDENT, 

MODEL MANAGEMENT, RISK MANAGEMENT SOLUTIONS, INC. 

Mr. ULRICH. Thank you for the opportunity to testify here today. 

For those of you who do not know who Risk Management Solutions 

is, RMS is the world’s leading provider of technology and services 

for the managing of catastrophic risk, both natural perils, such as 

earthquakes and hurricanes, as well as terrorism risks. We first released our terrorism model in 2002 and today have over 100 insurers and re-insurers actively using the model to manage risk. 

Just to clarify what a terrorism model is, we do not try to predict 

the time and place of the next terrorist attack. What we do—for a 

location or portfolio of hundreds of thousands of locations, we assess the likelihood that any of those may sustain property, business 

interruption damage, or human casualties under a spectrum of possible terrorist attacks from small bombs to large truck bombs, airplane hijackings, nuclear power plant sabotage, or CBRN attacks. 

And our model is built totally with open source information, which 

I understand about 80 percent of intelligence information is open 

source today. But the types of sources we rely on are, for example, 

we have a statistical database of over 20,000 terrorist attacks 

around the world since 2001. Over 1,000 of these are what we 

would call macro attacks, car bombs or larger. And focusing on 

Jihadist attacks in this database, you can see that 45 percent of 

the attacks around the world come against the major political or 

economic capital of the country, a New York or Washington, D.C., 

type city. If you look at the top five cities where attacks occur, that 

is 67 percent of the likelihood. Looking at this database, you can 

also see the types of weapons used. For example, over 75 percent 

of the attacks around the world are improvised explosion devices, 

IED’s. You can also see the distribution of small bombs versus 

large bombs. The types of attacks the jihadists prefer is at government buildings, hotels, infrastructure, and train stations. This is 

all valuable information that is available. 

We also look at academic literature on the motivation and objectives of the terrorist threat groups. We work with weapons experts 

on understanding the cost and logistics of the different attack 

modes. How hard is it to build a two ton bomb? How hard is it to 

get it to detonate efficiently? If you want to sabotage a nuclear 

12

power plant, what kind of skills do you need? How realistic a 

threat is that? 

And, finally, we also rely on expert opinion. We have formed a 

group of some of the world’s leading experts in terrorism threats 

to help advise us on understanding current trends, people like 

Bruce Hoffman, Rohan Guneratna, and Magnus Ranstorp, who are 

all key advisers to the U.S. Government. We have not had access 

to any classified information and, frankly, the most sensitive information probably wouldn’t help us. We don’t need to know that you 

have someone under surveillance at 123 Main Street in San Francisco. Classified information is the big unknown. I don’t know what 

you have that we aren’t privy to, but if I had a wish list, the type 

of things that would be helpful would be information on interdicted 

attacks that is not public domain. For example, how many attacks 

have been stopped that the public is not aware of, what types of 

targets were they after, what type of weapons were they planning 

to use, how many terrorists were involved, how close to success did 

they come, and how were they caught? Any indication of change in 

MO. Al Qaeda has been very focused on very low frequency, high 

severity attacks, spectacular attacks, such as the World Trade Center, that had a spectacular impact, high economic loss, high human 

casualties, and great symbolic value. If they want to change to 

where they are going to have 100 people go out into the public with 

explosive vests and there is intelligence that indicates that, that 

would be very helpful to us. 

Finally, capability assessments. There is certainly information 

out there about how there are nuclear warheads unaccounted for 

from the former Soviet Union. And if it was confirmed that, yes, 

they are missing, and they are in fact in the hands of terrorists, 

that would be very helpful information to know. Other information 

might just be intelligence on the effectiveness of our border security, land borders, air borders, sea, and cargo shipments, as well 

as security ratings of various cities or individual targets. And all 

this would help improve the models and reduce uncertainty in the 

models. 

And on the topic of uncertainty, I was asked to comment on the 

uncertainty of terrorism versus natural catastrophe. I think it is interesting that last year there were 27 named storms in the Atlantic 

Basin, unprecedented, whereas with terrorism there has not been 

a terrorist attack since 9/11. And it is partly controllable. If you 

tried to hijack a plane after 9/11, you couldn’t do it the next day 

because there were no planes flying. And eventually if there was 

a successful attack, the United States does have the ability to raise 

defenses. And you can bet that it would not be possible to hijack 

a plane again. 

So with that, I will close. Thank you. 

[The prepared statement of Mr. Ulrich can be found on page 70 

of the appendix.] 

Chairwoman KELLY. Thank you very much. 

Mr. DeBoer? 

13

STATEMENT OF JEFFREY D. DeBOER, PRESIDENT AND CEO, 

THE REAL ESTATE ROUNDTABLE 

Mr. DEBOER. Thank you, and good morning, Chairwoman Kelly, 

Chairman Simmons, and members of the two subcommittees. 

Thank you very much for holding this joint hearing today. My 

name is Jeff DeBoer, and I am president and CEO of the Real Estate Roundtable. As was mentioned, I also serve as co-chair of the 

Advisory Board for the Rand Center for Terrorism Risk Management. I am also chairman of the Real Estate Information Sharing 

and Analysis Center or ISAC, and I participate as a steering committee member for the Coalition to Insure Against Terrorism. 

From the policyholder perspective, obtaining terrorism insurance 

is critical to developing, financing, and transferring business property. The amount of needed terror insurance is dictated by lenders 

and by rating agencies. They have historically taken the position 

that all risk coverage requires terrorism insurance. Loan amounts 

must be covered by terror insurance to be approved and bond 

issuance must have adequate terror insurance to be attractively 

rated. And this view has been supported by the courts and it in effect creates a high demand for this product. Without terrorism insurance, we believe economic transactions will be smothered and 

jobs will be at risk. A Real Estate Roundtable survey taken in the 

post-9/1l, pre-TRIA days indicated that about $15 billion worth of 

real estate transactions had been stalled or completely canceled nationwide. The Council of Economic Advisors at the time stated approximately 300,000 jobs were lost during this period. Almost overnight, it is worth remembering, upon enactment, TRIA filled the 

re-insurance crater. Insurance capacity returned and transactions 

resumed. In particular, stalled construction projects moved forward 

to the benefit of countless workers in the construction trades. 

Today, I would like to say that demand for terrorism insurance 

is extraordinary. Studies of take-up rates show a higher terror 

take-up rate than the take-up rate in almost any other product 

where Federal or State Government is providing a capacity backstop in effect. And that includes flood, crop, earthquake, or previous riot and crime control programs. A Mortgage Banker’s Association survey has revealed that about 84 percent of commercial 

loans surveyed had terror insurance in place. I am sometimes 

asked, who is buying this coverage? Financial institutions, real estate firms, and health care facilities have the highest take-up rates. 

But right behind them are media companies, education institutions, energy companies, and transportation firms. 

Having said that, Roundtable members today report to me that 

the insurance markets are increasingly difficult. The multiple catastrophic exposures of hurricane, flood, wind, and earthquake, on 

top of terrorism, plus the high retention rates of TRIA and the 

pending expiration date that has been mentioned, have caused 

many insurers who are concerned about aggregation risks to leave 

markets. 

Also, as has been mentioned, according to a Moody’s report, a 

high percentage of all policies written prior to TRIA’s enactment 

contained the springing exclusions, which would automatically void 

coverage if TRIA had not been done on January 1, 2006. This is 

happening again in the marketplace. Businesses now shopping for 

14

policies that run past 2007 year end are being once again asked to 

accept these springing exclusions. We believe this is strong evidence that without Federal involvement, insurance availability 

would drop substantially. 

The ultimate victims of all of this, of no Federal program, would 

not be the insurance industry, although they are frequently talked 

about, it would be the American economy; it would be bond holders, 

pension investors, and jobs. America’s industries are highly concerned with nuclear, biological, chemical, and radiological exposures. Even though TRIA does cover these perils, we see no evidence in the marketplace today that this is being written except 

where mandated in worker’s compensation coverage. 

Regarding risk mitigation, I share many of the concerns that Mr. 

Frank mentioned. Having said that, however, the industry is 

spending large sums on security measures. It is important to note 

also that terrorism risk management strategy is now at the board 

level for large-scale property owners. Building tenants are being 

urged to have emergency protocols and owners are urging all tenants to coordinate their plans within the buildings. 

Our industry has also undertaken an unprecedented multi-sector 

initiative to share information on related terror risks. I would conclude on this point by saying that our industry standard 

benchmarking reference shows that the industry as a whole is 

spending about 20 percent more on security related measures than 

they were pre-9/11. 

But mitigation is not enough nor is it being appropriately reflected in insurance premiums. A long-term policy solution to this 

long-term risk must be found. TRIA and TRIEA both have been 

good programs, and perhaps they can be extended, but they are not 

the only potential answer. I would invite you to look at a program 

that we have attached to our statement. 

In conclusion, without Federal involvement, we don’t think there 

will be adequate insurance capacity to protect the economy in the 

face of a terrorist attack or to allow an economy to recover after 

an attack. 

Thank you again for the opportunity to be with you this morning. 

[The prepared statement of Mr. DeBoer can be found on page 30 

of the appendix.] 

Chairwoman KELLY. Thank you, Mr. DeBoer. 

Mr. Lewis. 

STATEMENT OF CHRISTOPHER M. LEWIS, VICE PRESIDENT, 

ALTERNATIVE MARKET SOLUTIONS, P&C CAPITAL MANAGEMENT, THE HARTFORD FINANCIAL SERVICES GROUP, INC. 

Mr. LEWIS. Thank you. Chairwoman Kelly, Chairman Simmons, 

Ranking Member Gutierrez, Ranking Member Lofgren, and members of the subcommittees, thank you for the opportunity to appear 

before you today to discuss the challenging issue of managing the 

threat of terrorism to the U.S. economy. My goal today is to provide 

perspective on the difficulties faced by the insurance industry as financial intermediaries helping companies to pool and manage 

risks, including the risk of terrorism. If it pleases the subcommittees, I will submit my full testimony in writing for the record and 

restrict my oral testimony to a summary of two key observations. 

15

First, terrorism is an uninsurable risk. Terrorism fails to meet 

the fundamental requirements for insurance. The risk of terrorism 

does not impact policyholders in a manner that is homogeneous, 

random, and independent across other policyholders. Moreover, the 

risk of terrorism is not well understood. Unlike the case of natural 

catastrophes, the insurance industry has no credible data or models 

that can be used to quantify the likelihood of a terrorism attack, 

the form of such an attack, and the location at which such an attack could take place. As a result, the industry cannot effectively 

price terrorism insurance and is forced to manage the risk of terrorism through exposure limits on entire commercial policies, often 

to the detriment of our policyholders. 

Second, the disappearance of Federal terrorism re-insurance 

could result in major coverage disruptions for policyholders. To see 

this, we need look no farther than the largely unregulated markets 

for traditional re-insurance and capital market insurance 

securitizations. Despite extremely high primary insurance company 

retentions under TRIA, the traditional reinsurance market has restricted reinsurance capacity for terrorism to de minimis levels. We 

have virtually no coverage provided where it counts, for terrorist 

losses caused by nuclear, biological, chemical, or radiological weapons. 

In the area of insurance link securitization, I can assure the subcommittees that virtually no meaningful capacity exists today to 

securitize terrorism risk. Having established and maintained an insurance link securitization program for natural catastrophes since 

2004, The Hartford has spent considerable time and energy attempting to leverage this technology to help finance the risk of terrorism. Not surprisingly, the same obstacles that impede the insurability of terrorism for the primary insurance and the reinsurance 

companies are preventing the development of an insurance link 

securitization market for terrorism. Therefore, in conclusion, I firmly believe that any credible solution for financing the risk of terrorism in the U.S. economy will require a continued partnership 

between the private insurance industry and the Federal Government. 

Thank you. 

[The prepared statement of Mr. Lewis can be found on page 66 

of the appendix.] 

Chairwoman KELLY. Thank you, Mr. Lewis. I ask unanimous 

consent that the statements of the Independent Insurance Agents 

and Brokers of America, the Rand Corporation, and the American 

Insurance Association be entered into the record. So moved. 

I would like just a yes or a no answer from each member of the 

panel to the following question: Do you believe that the threat of 

terrorism increases or decreases as we move away from 9/11? Just 

say increase or decrease, so I have some kind of picture of what 

your thinking is. Mr. Fleming? 

Mr. FLEMING. Increase. 

Chairwoman KELLY. Mr. Ulrich? Real simple, one word. 

Mr. ULRICH. Increase. 

Chairwoman KELLY. Mr. DeBoer? 

Mr. DEBOER. Given those two choices, increase. 

Mr. LEWIS. Same, increase. 

16

Chairwoman KELLY. Well, we will get to the nuances now. I 

would like to ask you whether a distinction between foreign and 

domestically-inspired acts of terror is meaningful from a risk assessment point of view? Mr. Fleming? 

Mr. FLEMING. RIMS believes that the distinction should be eliminated. Just looking at what happened in England last summer, 

they were homegrown terrorists but citizens of Great Britain, and 

we are concerned that the same kind of situation is going to occur 

here. If it happened in America, the distinction may have eliminated coverage under TRIA if they were homegrown domestic terrorists. 

Chairwoman KELLY. Thank you. Mr. Ulrich? 

Mr. ULRICH. From a threat standpoint, there is an extreme difference between the foreign threat and the domestic threat. 

Chairwoman KELLY. Would you like to elaborate on that? 

Mr. ULRICH. Well, there is no reason to believe right now that 

there is a Timothy McVeigh lurking out there right now but Al 

Qaeda has stated that they want to attack the United States. So 

the domestic threat exists but it is relatively minor. It is mostly 

people like the Animal Liberation Front, and the Earth Liberation 

Front, who are more after publicity than massive destruction, while 

Al Qaeda’s objectives are to create as much havoc and destruction 

as possible. 

Chairwoman KELLY. Mr. DeBoer? 

Mr. DEBOER. I think asking the Secretary of the Treasury to 

make a distinction of whether an act has been perpetrated by a foreign movement or by a domestic movement is artificial and irrelevant, and I think it should be eliminated. 

Chairwoman KELLY. And I think it should be eliminated. Mr. 

Lewis? 

Mr. LEWIS. I think given events overseas and trends that we see 

in the overall threat assessment, it is going to be increasingly difficult to distinguish whether or not an event is a certified or noncertified event. And I think the distinction is no longer going to be 

relevant going forward. 

Chairwoman KELLY. Thank you. Terrorists assess the likelihood 

of completing an attack and the amount of damage they will cause 

when selecting targets. So, consequently, pre-attack mitigation can 

help deter attacks or change the target set. Where do you think 

Congress can do more to encourage pre-attack measures in the private sector? Mr. Fleming? 

Mr. FLEMING. Well, the Federal Government has been very supportive of local governments in this area. Montgomery County has 

received a number of grants, helping us to harden our buildings, 

and to make people more aware of terrorism. I think that the Federal support, as more targets, the softer targets, become recognized 

by the people who are identifying exposures to terrorism coverage, 

that it needs to trickle down to a much bigger part of the economy. 

Chairwoman KELLY. Mr. Ulrich? 

Mr. ULRICH. They can help by prioritizing spending on the targets at greatest risk. But it is important to note that terrorism risk 

is like a balloon where if you squeeze the risk in one place, it pops 

out somewhere else. So as you protect one target, it just makes a 

neighboring target that is unprotected more likely to be attacked. 

17

Chairwoman KELLY. So you would think that we should encourage pre-attack measures everywhere? 

Mr. ULRICH. Not everywhere, starting with the high-priority targets, the targets at greatest risk. 

Chairwoman KELLY. Risk assessed? 

Mr. ULRICH. Yes. 

Chairwoman KELLY. Okay, thank you. Mr. DeBoer? 

Mr. DEBOER. Well, mitigation is a big concern of the real estate 

industry and, as I mentioned, we have, as an industry, spent substantial sums already on security personnel, barriers, other surveillance techniques. Our HVAC systems are now much more secure 

than they were before and the industry is spending a huge amount, 

both at the board level and on the ground making things more secure. 

Having said that, I think the most important thing, and it was 

mentioned earlier, I think by Chairman Simmons, and that has to 

do with information. What could mitigate the risk for a lot of buildings and building owners and their tenants is a proper flow of information from the Federal Government through the ISAC system 

back down to the ground. 

Chairwoman KELLY. Mr. Lewis? 

Mr. LEWIS. I think when assessing the threat of terrorism, it is 

important to keep in mind the interdependent nature of the terrorist threat so that for any given property, while you could try to 

harden that property, you can’t harden the property next door 

where if a terrorist attack occurs there, it is still damaging your 

property. So it is a challenge to try to establish effective mitigation 

for such a wide ranging threat that is dynamically evolving. I am 

not qualified to understand where the government should align its 

resources to counter terrorism based on the information that they 

have. I just think it is important to keep in mind the dynamic nature of that threat. 

Chairwoman KELLY. Thank you. I am out of time. I turn now to 

Mr. Gutierrez. 

Mr. GUTIERREZ. Thank you. The first question is for Mr. DeBoer. 

The Real Estate Roundtable’s proposal to create a Homeland Security mutual pool is an idea that I believe deserves some consideration. I want your assurance, however, that you do not anticipate 

any direct appropriation for this program. Another concern I have 

is the creation of another even larger GSE-type organization that 

creates a ‘‘two big to bail problem.’’ Would you please address that 

issue? 

Mr. DEBOER. Well, the appropriation issue, the way that this 

program would be funded would be by assessments of all insurance 

companies up-front, and then an ongoing assessment for insurers 

who want to participate in the program, and they pay a premium 

to get it up and running. To the extent that there is an appropriation, there is probably going to have to be a backstop continued 

during the early years while that pool builds up. So in effect, as 

the pool builds up, the backstop stands down, to coin a phrase. So 

there is not any direct appropriation involved. Obviously, over a period of time the pool would be built up, and we would anticipate 

that building up to $30- or $35 billion would provide the kind of 

layer that needs to exist between the taxpayer and loss coverage. 

18

Above that amount, I think that most everyone would admit that 

it gets to be a catastrophic loss, and the Federal Government is 

probably going to have step in. But, no, we are not talking about 

a GSE. We are not talking about too big to fail. We are not talking 

about an appropriation. 

Mr. GUTIERREZ. Thank you. Mr. Ulrich, in your testimony you 

proposed adding intelligence information to risk modeling to 

produce greater accuracy. This raises many red flags, for instance 

you mentioned the need for careful management of real time intelligence information to avoid what you refer to as a commercial 

asymmetry. That may be true, but I have other concerns. If real 

time information is made available to many different entities, how 

can we possibly expect this information not to be made public? 

Even if we don’t allow real time information to be used by the insurance industry, how do you propose to protect the information in 

general? 

Mr. ULRICH. That is a very good question. Our models are used 

by insurers around the world, so if it is incorporated into our 

model, it would essentially become public information. I think it 

would require that classified information become declassified because we couldn’t protect it, since people would be using it. 

Mr. GUTIERREZ. Mr. Lewis, you seem to be the most pessimistic 

of our witnesses regarding the ability to accurately assess terrorism risks. Mr. Ulrich, on the other hand, seems to have a little 

more confidence in our ability to predict and assess risks. In his 

testimony, Mr. Ulrich proposes that declassifying of certain information or even allowing the industry access to classified information would allow the industry to improve its model. Do you agree 

with this proposition? If so, would such a move substantially increase your confidence in the models? If you disagree, what, if anything, can be done to improve the reliability of predictive models? 

Mr. LEWIS. Thank you. That is a very good question. Not knowing the classified information that exists, it is difficult to comment 

on what value that information would add. I think it is important 

though that even if that information, at a certain point in time, 

helps us to understand the nature of the risk at that point in time, 

as we have discussed, the nature of the terrorist threat is constantly evolving and changing. So as soon as we know how to protect against a certain type of attack, the terrorists change their attack modes; they change the delivery mechanisms to bypass that. 

So I am still challenged to understand how having that information 

could create materially more confidence in our ability to understand and price for the threat of terrorism. Clearly, more information is generally good, we have seen that on the hurricanes side 

with respect to cooperation with NOAA. But I still don’t see with 

respect to the threat of terrorism, given its dynamic nature, how 

much further along that actually pushes us. 

Mr. GUTIERREZ. Mr. Ulrich, do you have anything to add to the 

comment just made by Mr. Lewis? 

Mr. ULRICH. No, I would agree that until I saw what information 

was available, classified information that could be made available, 

I would be unable to tell you what kind of changes would go to the 

model. 

19

Mr. GUTIERREZ. That is fair. Mr. Fleming, in your testimony you 

state that it is unreasonable to expect that the insurance market 

is going to respond to the need for terrorism insurance when it is 

having difficulty responding to the need for more predictable risk, 

like natural disasters. This sounds like you believe that the Federal Government will be the permanent re-insurer of terrorism 

risks. Is that the case? And do you believe that a voluntary mutual 

re-insurance entity, as proposed by The Real Estate Roundtable, 

might work in shifting the primary backstop burden away from the 

Federal Government? 

Mr. FLEMING. RIMS believes that the private insurance market 

is not capable of responding by itself and that there needs to be 

some form of either a public/private partnership or some form of a 

backstop. 

I was in a meeting recently with some senior underwriters from 

the largest insurance companies. They indicated that the capacity 

in today’s market is anywhere between $60- and $85 billion to respond to a terrorist attack or any catastrophe. Obviously, looking 

at Hurricane Katrina, we are approaching the $60 billion range 

and much of that damage was uninsured and backed up by the 

Federal Government. So we are of the opinion—and in the event 

that the insurance market had to pay for a catastrophe to the magnitude of $60 to $85 billion, it would put some companies out of 

business and they would be unable to pay claims for other types 

of coverage. So we think that a public/private partnership or some 

form of Federal backstop is required. 

Mr. GUTIERREZ. I thank all of the witnesses. 

Chairwoman KELLY. Thank you. Chairman Simmons. 

Mr. SIMMONS. Again, I would like to thank Chairwoman Kelly 

and Ranking Member Gutierrez for inviting our subcommittee to 

participate in this very interesting and important hearing. The 

Subcommittee on Intelligence has among its responsibilities to 

oversee the Department of Homeland Security for a terrorism-related threat, vulnerability, and risk analysis, and also the integration, analysis, and dissemination of Homeland Security information 

to public and private sector entities. And that would be the focus 

of my questions. Is the insurance industry at this point in time receiving any dissemination of terrorism risk related reporting from 

the Department of Homeland Security? If not, should they? If not, 

should we be focusing on some mechanism where this new component of our government, this new agency of our government, with 

this new and important mission should be reaching out to your industry as a private sector entity to assist in the analyses that you 

conduct? Any of the witnesses can respond. 

Mr. ULRICH. I can’t speak for the insurance industry because I 

am not part of it but we certainly make great efforts to disseminate 

all the information we gather through our work with various terrorism experts—changes in threat, what type of attack modes to 

expect, and the likelihood of attack. And we do that through seminars for all our clients and in quarterly bulletins that we send out. 

So we do attempt to disseminate. 

Mr. SIMMONS. But what are you getting from the Department of 

Homeland Security, if anything? And, if not, should you be getting 

something from them? 

20

Mr. ULRICH. We do not get anything from DHS. 

Mr. SIMMONS. Any of the other witnesses get anything from the 

Department of Homeland Security? 

Mr. DEBOER. Yes, sir, in the real estate industry we have an 

ISAC that involves the 15 major real estate trade associations, as 

well as the facility managers group from around the country and 

stadium operators and so forth. We have an ongoing relationship 

with the Department of Homeland Security. We get information 

from them on a regular basis. In some ways, it is almost too much 

information. We receive bulletins, alerts, and so forth almost daily. 

We then disseminate that information out to the industry. We send 

things sometimes to hundreds of thousands of people about certain 

information that comes from the Homeland Security Department. 

If I had a criticism, I might say that some of the information is 

almost too general, too broad to be of any use. Some of our members respond—and I don’t want to be too pejorative here—but almost treat it as spam in the sense that you get so much information, what is really relevant? So our message on this front, Mr. 

Chairman, is more relevance, more timely information, more actionable information, if you will. 

Mr. SIMMONS. Then if I could follow-up on that a little bit. Is this 

information classified, unclassified, sensitive but unclassified, official use only; what is the nature? 

Mr. DEBOER. A variety of all of the above. We do have two staff 

people who have received clearance, and they do get information 

that would not then be disseminated outward. But most of this information is unclassified—sensitive information, I guess is what 

you would call it. 

Mr. SIMMONS. Anybody else? 

Mr. LEWIS. Just to further elaborate on that. We do get a lot of 

information. It is all open source information that we get. And for 

the most part, we rely on outside modeling experts, including RMS, 

to try to translate that information into something that is in fact 

actionable that we can actually use to support the management of 

the terrorist risk ourselves. 

Mr. SIMMONS. And in the information that you receive, is there 

any value in incorporating any of this into your modeling? 

Mr. ULRICH. We use information from all sources. A lot of the experts we work with are privy to classified information. They obviously don’t turn that over to us, but it certainly helps them to form 

their opinions, and then that is incorporated into our model. 

Mr. SIMMONS. And you said, Mr. Ulrich, on page 5 that there are 

two options available to you. One is declassifying the information, 

and the other is extending security clearances to those people who 

do your modeling. Which do you prefer? 

Mr. ULRICH. Declassifying the information. I don’t know the 

logistical challenge between giving everybody security clearance 

and maintaining the classified nature of the data, I don’t know if 

that would be possible. 

Mr. SIMMONS. And do any of your people have security clearances? 

Mr. ULRICH. Not that I am aware of. 

Mr. SIMMONS. Thank you. 

Chairwoman KELLY. Thank you. Ms. Lofgren? 

21

Ms. LOFGREN. Thank you. I am reminded that there are really 

two kinds of information, at least, that can come out of the Department of Homeland Security. One is the information that is gathered primarily not by DHS but accumulated, analyzed, and disseminated about threats that we learned. But the other is something that is more ongoing. What steps can we take to mitigate 

those vulnerabilities? And I think all of us saw the newspaper articles in the last several weeks about the popcorn factory that made 

it onto a list and the mule run and the flea markets and the like. 

And I remember last year we had a miniature golf course that 

made it on the list in my district. And although people teased 

about that, we recently had a briefing on it and obviously it was 

classified so I will not discuss that briefing at all. But I will say 

as a general matter, that there are really two things, and I think 

we have seriously mishandled this. One is the critical infrastructure of the United States and the other is just the National Asset 

Database, basically a dump truck that lists every supermarket, 

lists every check cashing office or the like, and the two are not the 

same. As I listened to you, Mr. Ulrich, it seems to me that you may 

have actually, and this is a question not a statement, gotten farther towards mapping the critical infrastructure of the United 

States than the Department of Homeland Security. Can you really 

let us know in a general way whether you have mapped out, for 

example, the cyber issues and the utility issues and the like that 

would make up the critical infrastructure of the United States? 

Mr. ULRICH. Yes, well, we have a very different target list in our 

model. We have a very small list, in fact it is only about 3,800 targets in the whole country, so I hope we don’t have petting zoos and 

miniature golf courses on ours. 

Ms. LOFGREN. Correct. 

Mr. ULRICH. We are much more focused on targets of extreme 

high value or dense population. So we have gone through that, and 

we continue to go through that, and that is the type of thing we 

look through attacks around the world to see what are the trends. 

The Madrid bombing was a great example of—it was very successful so you expect to see that kind of thing again. So we prioritized 

train stations and subway stations. And, sure enough, you saw that 

attack occur again in London. So that is the way we use that information to prioritize. 

Ms. LOFGREN. This is proprietary but I wonder have you shared 

this with the Department of Homeland Security? Maybe we could 

get some help from you. 

Mr. ULRICH. We would be happy to. We don’t publish it because 

our model is essentially a terrorism optimization model. 

Ms. LOFGREN. Right. 

Mr. ULRICH. It tells the terrorists where to go attack but we 

would be happy to work with you on that. 

Ms. LOFGREN. Well, I may follow-up with you if I could on that. 

I want to talk a little bit about cyber security. A number of years 

ago when cyber was still in the White House, there was a national 

strategy to secure cyberspace. And some have criticized that it is 

not being ambitious enough but the truth is here we are it is 2006, 

towards the end, we haven’t implemented the strategy. There is 

really nobody in charge at the Department of Homeland Security. 

22

With a strong bipartisan effort a few years ago, we pushed to get 

an assistant secretary for cyber security so somebody would be paying attention. That position has never been filled. It is over a year 

that it has been empty. And so we really haven’t done anything on 

cyber, and I continue to believe—I represent Silicon Valley, we 

have some very substantial vulnerabilities. And certainly industries that are outside of the high-tech space have recently contacted 

me very concerned of the vulnerabilities that exist. Is that something that you have taken a look at in terms of our cyber 

vulnerabilities and is it something that—any of you if you could answer—that you might be able to move us forward on through an 

insurance mechanism? 

Mr. ULRICH. Well, the short answer is we haven’t looked at it, 

not from a lack of interest but it definitely does not fit into the 

mold, the Al Qaeda desired attack is something where there is 

massive destruction of property and human casualties. 

Ms. LOFGREN. Well, you could destroy lots of property with it. 

Mr. ULRICH. Right, it is in a very different way. And we have 

talked to experts about it. There is a question of whether the skills 

are there. 

Ms. LOFGREN. They are for sale. 

Mr. ULRICH. And certainly their funding terrorist activities 

through petty theft of credit cards and all. So there is a lot of that 

going on but we have not pursued further the potential for cyber 

terrorism. 

Ms. LOFGREN. I see my time has expired, Madam Chairwoman. 

Chairwoman KELLY. Thank you. Ms. Jackson Lee. 

Ms. JACKSON LEE. Thank you very much, Madam Chairwoman, 

and thank you very much for the invitation to this hearing. I would 

be interested in tracking the same line of questioning. We have 

spent every day since 9/11, and many of course have spent that 

time before 9/11, concerned about preventative measures. There 

was much second-guessing after 9/11 and one of the chief issues, 

I think, of the 9/11 Commission Report was the importance of intelligence. Might you share with me your concepts, if you will, on 

modeling. What would you perceive to be the limitations of predictive modeling for acts of terrorism? If I could get all of you to 

take a stab at that question. And what can be modeled and what 

can’t be modeled so that we can begin—or not begin but continue 

to find ways of improving our securing intelligence and finding the 

right models to work. I pose those two questions if all of you could 

begin to answer that. 

Mr. FLEMING. The inherent problem with terrorism is its unpredictability. We can’t predict what weapon will be used, where it 

will be used, or how often it will be used. As a local government, 

we take steps to harden our buildings, to secure our employees 

through identification badges and that type of step to prevent as 

best we can a terrorist attack at a local government. We feel that 

we are not particularly a target. And RIMS being a consumer of 

insurance doesn’t have the scientific ability to do modeling, and we 

depend on Mr. Ulrich and companies like his to provide modeling 

to insurance companies to make these products available for consumers. 

23

Ms. JACKSON LEE. Mr. Ulrich, it comes to you and you have modeling in your title, can you help us because beyond the private sectors, the governmental sector, we are engaged in how people can 

predict risk insurance but can we do that and how should we effectively try to enhance that model? 

Mr. ULRICH. Sure, well, we obviously think we can do a good job 

of assessing the likelihood of different targets being attacked, the 

type of weapons that will be used, and we know the terrorists have 

limited resources in terms of how many attacks they can pull off 

in a year. But the challenge is you can’t make any location terrorist-proof. So at the end of the day, the money best spent is the 

money that catches the terrorists before they ever get to the point 

where they have built the bomb because once they have the bomb, 

it is tough to stop. 

Ms. JACKSON LEE. Intelligence on the front end as opposed to the 

back end. 

Mr. ULRICH. Exactly. 

Ms. JACKSON LEE. Gentlemen, anyone want to comment further? 

Mr. DEBOER. Well, I guess I am a little bit unqualified on some 

of this but I would say that we are the consumers of the product 

that is being delivered here. And we look at why this thing can’t 

be priced and it strikes us that it is very logical that it can’t be 

priced. This is a manmade threat. It is an evolving threat. Its goal 

is to alter governmental policies in the United States and the way 

of life here so it is constantly changing. There are potential catastrophic losses at the top end and that makes it difficult to model. 

What has been mentioned is that as you harden some buildings, 

other buildings become more open to an attack. It is certainly true, 

as we have seen, where governmental facilities have been hardened, creating greater exposure for privately owned facilities. So I 

think it is very, very difficult to respond to your question in a way 

that would make this modeling work when I think a lot of us believe on its face it can’t. 

Ms. JACKSON LEE. So can you give your cities and counties any 

comfort in their determinations on insurance, what they should do? 

Mr. DEBOER. Well, what we can do as far as building owners is 

take steps to inform ourselves as to what the current mode of attack might be. We can take steps to mitigate against those risks 

that we know about. And we can share information with our colleagues around the country as to what we are seeing in our locations that might increase exposure. 

Ms. JACKSON LEE. Thank you. 

Mr. LEWIS. If I may follow-up on that. 

Ms. JACKSON LEE. Yes, thank you. 

Mr. LEWIS. In terms of what we feel comfortable modeling today, 

given the technology of RMS and others, would be the severity of 

a conventional terrorism attack at a specific location. We feel that 

we can understand, given an attack takes place at a certain building, what the loss could be. We do not feel comfortable that we can 

in any way model the frequency or likelihood of an attack in general, the attack mode, or where that attack could take place. Moreover, for an attack using weapons involving nuclear, biological, 

chemical, or radiological weapons, we do not feel comfortable that 

we can fully gauge the severity of that attack or what the ramificaVerDate 0ct 09 2002 16:39 Mar 02, 2007 Jkt 031540 PO 00000 Frm 00029 Fmt 6633 Sfmt 6633 K:\DOCS\31540.TXT HFIN PsN: TERRIE
24

tions would be for the clean-up after that attack. If one goes back 

to the anthrax attacks a few years ago, the length of time it took 

to identify the source, identify what was involved in the clean-up, 

for that scale, if one can imagine on a broader scale, it is very difficult for someone to get their arms around, what the true magnitude of those losses could be. In contrast, for hurricanes or earthquakes, we have hundreds of years of actual events and thousands 

of years of data to support the information that is coming out of 

the modeling to give us some comfort that what we are seeing in 

terms of modeled output actually can be corroborated with history. 

And there is no clearer view of the difficulty than if you look again 

at the reinsurance markets, who have every incentive that if you 

can price this and if you can quantify it, that they would actually 

trade on that. And there is virtually no market there. That is the 

best indication of the lack of comfort in the ability to model this 

risk. 

Chairwoman KELLY. Thank you, very much. 

Ms. JACKSON LEE. Thank you, very much. 

Chairwoman KELLY. Mr. Cleaver. 

Mr. CLEAVER. Thank you, Madam Chairwoman. All of you agreed 

earlier about the inevitability of another terrorist attack. I would 

like to get a similar response on your belief that we will have another killer hurricane? 

Mr. FLEMING. I think that is inevitable. 

Mr. ULRICH. Guaranteed. 

Mr. DEBOER. I would estimate that it will probably happen. 

Mr. LEWIS. I think in responding to that, if one looks at the history in the United States and goes back to prior events, you can 

go back to the hurricane in Miami in 1926, and if you adjusted for 

property values and exposures that exist there today, it would be 

well in excess of the losses that we incurred for Katrina. So with 

all the build-up in property values along the coastline today and 

the fact that we do have a lot of hurricane activity, it is inevitable 

that we will have more hurricanes. 

Mr. CLEAVER. Then it would seem to me that what happened on 

the Gulf Coast should provide some analysis of our ability to respond to another terrorist attack. And based on what happened 

down in the Gulf Coast and the problems that citizens are having 

even today, including Members of Congress who lost their homes, 

should the American public believe that in the event of another terrorist attack, or if the terrorists are able to create hurricanes, what 

should the American public expect from the insurance industry 

with the problems that we are having even at this very hour with 

insurance companies. 

Mr. LEWIS. Let me respond. I think with respect to hurricanes, 

I think we feel like we understand with some degree of uncertainty 

what the risk of the hurricane threat is, and we try to make sure 

that we respond to our policyholders very quickly to pay those 

claims. I think what you are hearing today is that there is a real 

challenge when it comes to the threat of terrorism because we do 

not feel that we can fully understand what that risk is and what 

would be involved in responding. And we think to come up with a 

solution that provides the best response for everybody, for policyholders, for taxpayers, requires a partnership between the private 

25

industry and the Federal Government to provide that mechanism 

so that after an event, if it ever happens, there is that immediate 

response. 

Mr. CLEAVER. But you are saying we do know what the risks are 

with the hurricanes. In spite of the fact that we have that knowledge, we still have not been able to respond adequately to thousands of people in that region. And if you are saying we don’t understand the full risk of terrorism, which led me to assume that 

you were saying we do understand it with hurricanes, then can we 

expect that the response would be significantly better with a terrorist activity than what has happened in the Gulf region? 

Mr. LEWIS. I think if you look at the Gulf, the insurance industry 

has tried to respond very quickly to our policyholders in that area. 

I think in terms of the broader threat of natural disasters, there 

are things that can be done, enforcement of building codes, making 

sure there is rate adequacy on those underlying policies, education 

uncovered for individuals. There are a number of things that can 

improve that, but I think it is a unique challenge when it comes 

to the threat of terrorism. 

Mr. LEWIS. Mr. DeBoer? 

Mr. DEBOER. As far as the insurance responding to terrorism, 9/

11 obviously was a tragedy from every perspective but one thing 

that was clear was that the insurance industry stepped up to the 

plate and paid those losses that came due. The reason they did 

that was because everybody who carried property and casualty insurance at that time implicitly had terrorism insurance. So they 

had insurance. When you ask what would be the result of a terrorist attack, I think the question is would there be terrorism insurance available to be purchased? What we are suggesting is that 

if this Federal program goes away and another program is not put 

in its place, the insurance industry is not going to be capable and 

will not have the capacity to offer that product. Therefore, if another 9/11 attack occurs and people do not have insurance, there 

won’t be anyone to pay those losses other than the Federal Government, to the extent that the Federal Government pays them. And 

that is the big difference. 

Now, I don’t know down in the Gulf, I think a lot of—there may 

be a lot of uninsured activity down there and maybe that is— 

Mr. CLEAVER. Well, no, actually— 

Chairwoman KELLY. Mr. Cleaver, will you sum up, please? 

Mr. CLEAVER. Thank you very kindly. I yield back the balance of 

my time. 

Chairwoman KELLY. There isn’t any left. Thank you. Mr. Crowley? 

Mr. CROWLEY. I thank the chairwoman and the chairman for 

holding this committee, as I mentioned earlier. And I want to 

thank our witnesses as well because I think you have brought to 

light many of the concerns of many of the members here in the 

committee, both in the Department of Homeland Security community and maybe more particularly the Committee on Financial 

Services. And I have been disturbed over the year about some of 

the comments coming from this Administration in regards to terrorism backstop insurance. And what causes me the greatest concern is that I believe we are still at incredible risk of attack. And 

26

I also believe that what gives our economy its greatest strength is 

that it is viewed worldwide and here at home, that it has the full 

faith and backing of the U.S. Government. Who doesn’t believe that 

if we were attacked in some catastrophic way, the Federal Government wouldn’t step in in some way, any way, it is in the interest 

of the Federal Government to create, I believe, this backstop provision. If there is a cataclysmic event, who else but the Federal Government can actually step in and provide the real insurance that 

is needed to give this economy the stability that it needs. Mr. 

DeBoer, if you could, I want to ask you very specifically about the 

folks, the clients that you represent. From their perspective, one of 

your members, just take us briefly through the process of how they 

would determine whether or not they would go forward with a 

project. What role does the availability of insurance play in that decision? Does it come into play at the beginning, the middle, or the 

end? Are there ways to get around a lack of capacity that can allow 

development to go forward or is it more likely that we would see 

a halt to development in the absence of terrorism risk insurance? 

Mr. DEBOER. I appreciate the question. It really does go to the 

heart of this. Our view is that if there is not a program, there will 

not be the capacity for the product. If there is not a product, you 

can’t finance, you can’t develop, and you can’t transfer large-scale 

real estate. Now the heart of your question depends on whether 

you are talking about developing a new project or buying or selling 

an existing product. If you are developing something, and it is a 

multi-year project, you need financing that will get you from day 

one through multiple years and multiple phases of that development. You need to have not only financing in place but to get the 

financing, you need to have insurance in place. So the individual 

developer would begin by going through his financier to try and get 

the financing. He would go to his insurance broker and try to obtain enough insurance to make it through that multi-phase development. He might have to: piece together that insurance from multiple insurance carriers; use some from his existing carrier; go to 

the standalone market to fill a piece; or go overseas to fill a piece. 

And so it is all stitched together. If it is a developer who has multiple properties, he might be spreading that risk and spreading 

that insurance among his entire portfolio and there might be insurers willing to provide insurance because they know that not all 

properties are going to be subject to a loss at any one time. 

But this is an issue that comes up at the start of the project. It 

is at the start of the project whether you are developing, refinancing, financing, selling, or buying a property. It is a critical part 

of doing business today. The other thing I would say is this is not 

just a large city issue. Any property—right now the CMBS market, 

the commercial backed securities market, is the second largest 

source of financing for commercial real estate. Loans from all types 

of property across the country are put into those security pools. 

They have to be rated and the providers have to look and determine whether there is terrorism insurance on all of those loans or 

the bond issuance will not receive an attractive rating. So this is 

a broad-scale issue. 

Mr. CROWLEY. I am going to ask another question, I don’t want 

you to answer it right away because I want to get another question 

27

in first. But are your members able to get coverage for nuclear, 

chemical, biological, or radiological risk? And from a developer’s 

perspective, what impact does that lack of coverage, if you are not 

able to get it, what risk does that entail for your clientele? Before 

you answer that though, I don’t pretend to know your knowledge 

of a particular site, but what you do know of the World Trade Center site in New York with 5 years out, we have yet to develop that 

property. Does that site have particular problems, as you see it, 

going down the road in terms of its redevelopment, the fact that 

it was the site of a terrorist attack and the fact that it has not 

moved forward in the way in which we would like to have seen it 

in New York. Are there any particular problems that you foresee 

going down the road? In other words, further requiring for this particular site an extension in some way of determining risk insurance 

down the road? 

Mr. DEBOER. I would prefer to let the Silverstein properties people respond directly to it except to say again that this is a multiyear project. It needs insurance over a long period of time to do 

this construction. It is also the site that has been the subject of two 

terrorism attacks so therefore its risk profile is high. 

Mr. CROWLEY. I am sure they would appreciate the last part of 

your question. 

Chairwoman KELLY. Thank you, Mr. Crowley. 

Mr. CROWLEY. Could he answer the middle question? 

Chairwoman KELLY. We will let them finish. 

Mr. DEBOER. Mr. Crowley, the answer to your first question is 

no. On a generally available basis, you cannot get insurance for nuclear, biological, chemical, or radiological attacks. The way that 

people do it is through captives, their own captives, and that is, to 

our knowledge, the only broad-scale availability of NBCR coverage 

in America today. If the backstop goes away, these captives will go 

away and America won’t have this kind of coverage. 

Mr. CROWLEY. Thank you. Thank you, Madam Chairwoman. 

Chairwoman KELLY. Thank you for being here. Mr. Dent, do you 

have any questions for this panel? 

Mr. DENT. No, I don’t. Thank you. 

Chairwoman KELLY. Thank you very much. We thank this panel. 

The Chair notes that some members may have additional questions 

for this panel, and they may wish to submit those questions in 

writing. So without objection, the hearing record will remain open 

for 30 days for members to submit written questions to these witnesses and to place their responses in the record.

28

I want to assure this panel and other people here that this is an 

issue that we have been working on—I personally have been working on this issue ever since 9/11, and I want you to know that I 

will keep working on this issue and we will revisit this question 

until we get this right for all of America. So thank you very much. 

This hearing is now adjourned. 

[Whereupon, at 11:30 a.m., the subcommittees were adjourned.] 

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