U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2250 Mail: Stop SSOP, Washington, DC 20402–0001

29–460 PDF 2006

TREASURY’S REPORT TO CONGRESS ON THE

TERRORISM RISK INSURANCE ACT (TRIA)

HEARING

BEFORE THE

COMMITTEE ON FINANCIAL SERVICES

U.S. HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

JULY 13, 2005

Printed for the use of the Committee on Financial Services

Serial No. 109–45

(

(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 

JOHN CAMPBELL, 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)

C O N T E N T S 

Page 

Hearing held on: 

July 13, 2005 ..................................................................................................... 1

Appendix: 

July 13, 2005 ..................................................................................................... 43

WITNESSES 

WEDNESDAY, JULY 13, 2005

Snow, Hon. John W., Secretary of the Treasury ................................................... 6

APPENDIX 

Prepared statements: 

Oxley, Hon. Michael G. .................................................................................... 44

Crowley, Hon. Joseph ....................................................................................... 45

Gillmor, Hon. Paul E. ....................................................................................... 47

Kanjorski, Hon. Paul E. ................................................................................... 48

Snow, Hon. John W. ......................................................................................... 49

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Frank, Hon. Barney: 

Letter from the Commercial Mortgage Securities Association ..................... 56

(1)

TREASURY’S REPORT TO CONGRESS ON THE 

TERRORISM RISK INSURANCE ACT (TRIA) 

Wednesday, July 13, 2005

HOUSE OF REPRESENTATIVES, COMMITTEE ON FINANCIAL SERVICES, Washington, D.C. 

The committee met, pursuant to notice, at 2:11 p.m., in Room 

2128, Rayburn House Office Building, Hon. Michael G. Oxley 

[chairman of the committee] presiding. 

Present: Representatives Oxley, Leach, Baker, Pryce, King, 

Royce, Kelly, Gillmor, Ryun, Shays, Fossella, Kennedy, Hensarling, 

Garrett, Barrett, Price, Davis of Kentucky, McHenry, Frank, Kanjorski, Waters, Maloney, Velzquez, Ackerman, Sherman, Meeks, 

Lee, Capuano, Crowley, Israel, Baca, Matheson, Miller of North 

Carolina, Scott, Davis of Alabama, Cleaver, and Bean. 

The CHAIRMAN. The committee will come to order. Pursuant to 

Rule 3(f)(2) of the Rules of the Committee on Financial Services for 

the 109th Congress, the Chair announces he will limit recognition 

for opening statements to the Chair and ranking minority member 

of the full committee, and the Chair and ranking minority member 

of the Subcommittee on Capital Markets, Insurance, and Government-sponsored Enterprises or the respective designees to a period 

not to exceed 16 minutes evenly divided between the majority and 

minority. The prepared statements of all members will, of course, 

be included in the record. 

The Chair is also advised that our witness today, the distinguished Secretary of the Treasury, needs to leave by 4:30. The 

Chair now recognizes himself for an opening statement. 

Good afternoon, Mr. Secretary, and welcome back to the committee. We look forward to hearing your testimony today on the 

Treasury Department’s recent report on the Terrorism Risk Insurance Act, or TRIA. 

This Nation suffered a series of brutal terrorist attacks on the 

morning of September 11, 2001. The massive destruction wrought 

by the enemies of America, including the total incineration of the 

World Trade Center, caused tens of billions of dollars in damages, 

and of course, killed over 3,000 people. No one knew how our economy would react in the immediate aftermath of these attacks. The 

uncertainty that was felt in the wake of that tragic day greatly impacted consumers in the insurance marketplace. Insurers paid out 

record claims in excess of $35 billion, but industry surpluses were 

drained, reinsurers withdrew, consumers couldn’t get new policies 

with terrorism coverage, and construction projects with real jobs 

were being put on hold. 

2

President Bush immediately called on the Congress to pass terrorism insurance legislation to protect consumers and our economy. 

This committee rose to the challenge, and within 3 months of 9/11, 

we developed and passed in the House the initial version of TRIA 

that eventually became law. 

TRIA established a public-private partnership with a temporary 

backstop to protect against future catastrophic terrorist attacks 

through December 31, 2005. 

Reviewing the Treasury’s report on TRIA, it is clear that the U.S. 

economy has recovered quite well from the attacks of 2001. However, TRIA has not encouraged private insurance to return to the 

U.S. market. In fact, TRIA may be hindering the development of 

innovative private sector approaches to providing terrorism insurance. TRIA was constructed as a temporary program, and a simple 

extension to the current program could actually be detrimental to 

the Nation’s long-term economic health. I agree with the Treasury’s 

assessment that we need a new revamped terrorism program. We 

need a terrorism program that will encourage the growth of private 

sector capacity, provide for greater taxpayer protection, and reduce 

the role of the Federal subsidy over time. 

This committee has spent the last 3 years studying terrorism insurance and the need for an effective long-term solution. We have 

held hearings and roundtables, ordered numerous GAO reports, reviewed countless studies, and met with key marketplace regulators, 

consumer groups, and industry representatives. We know what 

needs to be done and have a good idea how to do it. My hope is 

that we can overcome partisan rhetoric to do this in a manner that 

is pro-consumer, pro-taxpayer, and pro-national security. 

I look forward to hearing the Secretary’s analysis of the Treasury 

report and on working together on a revamped terrorism insurance 

program that will meet the goals in the Administration’s letter. I 

retain the balance of my time, and now yield to the gentleman from 

Massachusetts, the ranking member. 

Mr. FRANK. Thank you, Mr. Chairman. I appreciate your calling 

this hearing and I appreciate the Secretary’s diligence here. To me, 

the key point comes from the Secretary’s testimony; and he says in 

that testimony—and I know the Administration has a somewhat 

mixed view on this, but this is a flat statement: ‘‘While the immediate effect of the removal of the TRIA subsidy is likely to be less 

terrorism insurance and higher prices, we expect that, over time, 

the private market will develop additional terrorism insurance capacity.’’ 

I do not think it is reasonable for us to allow a situation in which 

we will see, quote, from the Secretary, ‘‘less terrorism insurance 

and higher prices’’. There are specific proposals for change that we 

are prepared to consider, obviously. You, Mr. Chairman, when the 

original proposal came forward, made some changes. The level of 

the co-payments, the deductible, all of those are legitimate to talk 

about. But I think it is clear from what the Secretary has said that 

a failure to go forward with this program now would be a grave 

error. 

It is also important that we move quickly. I think it is important 

to note that in the minds of many of us, the main beneficiaries of 

this are not the insurance companies but the insureds. The probVerDate 0ct 09 2002 10:34 Sep 18, 2006 Jkt 029460 PO 00000 Frm 00006 Fmt 6633 Sfmt 6633 F:\DOCS\29460.TXT HFIN PsN: TERRIE
3

lem here, I think, frankly, is that a lot of insurance companies will 

find other things to do. But particularly in some of our bigger cities, particularly where we are talking about the construction of 

large buildings, the existence of terrorism insurance is important. 

I will be putting into the record, and I would ask unanimous consent to do that now, a letter from the Commercial Mortgage Securities Association. 

The CHAIRMAN. Without objection. 

Mr. FRANK. In the letter they talk about the devastating effect 

the absence of terrorism insurance would have on them. And they 

note that a number of pension funds have bought these securities 

and would be negatively affected. 

It is also the case of what we are talking about here is the end 

users, the builders, and that is the reason why we have to move 

quickly. You cannot, if you are planning to build a large building, 

wait until the expiration date. We need people to be given the assurance that this program will continue. And it is entirely legitimate to consider whether or not there should be changes. But as 

I said, I take the Secretary’s statement as an indication that at 

least for the next few years—we can talk about what goes on after 

that—we need to continue this program. And we need to make that 

decision very promptly so that the people who are contemplating 

building can go forward. 

And just two other policy points. The Secretary says, and I agree 

with this, that the macro economic effects are not great, but micro 

economic effects are very important. This does not affect the whole 

country equally. There are some parts of the country, as we recognize with our formulas, that are more vulnerable to terrorism than 

others. There are some parts of the country that will be asked to 

pay a greater price if there were to be no Federal terrorism insurance. And I do not want to see a burden put on those parts of the 

country which are more vulnerable to terrorism attacks as we anticipate than others to see that insurance there goes much higher 

for things that are not their fault. 

When we are talking about many of the risks against which we 

ask them to insure, we are talking about risks that we can ask 

them to control. But nobody building an office building can do anything about terrorism. This is legitimately a Federal responsibility. 

And since the deterrence of terrorism is a Federal responsibility, it 

makes sense to have the insurance be a part of it. 

Finally, I just would note that along with the other members on 

our side who have been very active in this, we have urged that 

group life be included. And to have terrorism risk insurance that 

covers buildings and not life would I think be the kind of committee equivalent of the old neutron bomb which killed people and 

left buildings standing. We don’t want to do the reverse of that and 

compensate for buildings and ignore human lives. As a matter of 

fact, this Congress recognized the problem there when we passed 

the program which was well administered by Mr. Feinberg to provide some compensation to people. And there were ways in which 

we could change it. But it was very important, and it is particularly important for the economic development and health of many 

of our larger cities that we go forward with this program and that 

we go forward with it properly. 

4

I would reserve the balance of my time for Mr. Kanjorski. 

The CHAIRMAN. The gentleman yields back. The gentleman from 

Louisiana, Mr. Baker. 

Mr. BAKER. I thank the Chairman. We are indeed in difficult 

days. As we consider the aftermath of the attacks in London, it is 

clear that the President’s leadership in Iraq and pursuing terrorists 

of every stripe is indeed the right action to take because we know 

for certainty that at some point they will return. 

What is not clear is how we protect taxpayer interest while balancing the necessity to ensure our economic system functions without disruptive interference as a result of a physical assault on our 

property and lives. This is the difficult balancing act: preserving 

taxpayer money while not giving it away to businesses whose profit 

is based on the taking of risk and, at the same time, ensuring that 

when the surpluses are exhausted and the system can no longer 

function that the Federal Government steps in at that point to act 

as a bridge, not as a guarantor of profit, but to ensure the economic 

function continues without interruption. 

We cannot let the terrorists win twice. We know for certain they 

will come again unless we are successful in the near term in eradicating these evil-minded individuals; they are committed to destroy 

any free enterprise system they can attack and escape into the 

dark night. 

I think the report is an essential and critical overview of the status of the industry as it is now structured, and I have found much 

of its content to be very helpful in reaching a better understanding. 

What is required now is a creative solution, one which calls for balancing protection of taxpayers with the backstop being very far 

afield where industry resources are deployed and made the most effective utilization, and where I can go to my rotary club in my 

hometown and say to my taxpayers your money was not put at risk 

without good reason. And, when the industry returns to profitability, we will get your money back. It will require creative thinking and a new solution. I do not believe we now have that creative 

solution within our grasp. I am pleased that the Secretary would 

come here today and give us an explanation as to their findings, 

and I hope that today marks the beginning of a new effort to determine what that creative solution should look like, and that we can, 

within a timely and responsible manner, develop legislation for this 

committee to consider. 

Mr. Chairman, I look forward to continuing to work at your direction and with those who are interested in this important matter, 

because we cannot turn our back on the consequences of another 

unbridled assault on the American economic system and have the 

Congress stand by with its hands in its pockets. We have got to 

find a way to get this fixed. Thank you, Mr. Chairman. I yield 

back. 

The CHAIRMAN. The gentleman yields back. The gentleman from 

Pennsylvania, Mr. Kanjorski. 

Mr. KANJORSKI. Thank you, Mr. Chairman. I am pleased that we 

are finally meeting this year to examine the need to extend the 

Terrorism Risk Insurance Act. This law is critical to protecting our 

economic security. 

5

In the wake of the 2001 terrorist attacks, reinsurers, unfortunately, curtailed the supply of terrorism reinsurance, and insurers 

began to exclude such coverage from policies. Eventually we belatedly approved the Terrorism Risk Insurance Act to address these 

pressing problems. 

Our efforts to address this predicament appeared to have 

worked. After all, the Treasury Department’s recent study on the 

law found that the program has helped to stabilize our insurance 

markets. Several other studies have also determined that TRIA has 

worked to increase the availability of terrorism risk insurance and 

advance economic development projects. 

Last year, we were also able to reach an agreement in the Financial Services Committee to extend TRIA for 2 years and to modestly expand its coverage with group life insurance. Unfortunately, 

our bipartisan efforts fell short of their goal and that bill did not 

become law. Nevertheless, I continue to believe that we need to 

move aggressively now to extend this economic stabilization. Our 

failure to reach quick agreement on this important issue, according 

to Treasury’s TRIA report, would likely result in less terrorism insurance, higher prices, and lower policyholder takeout. 

A recent report by the RAND Corporation also found that TRIA 

is needed, but because of its gaps it is not robust enough to protect 

against evolving threats. Another report by the Organization of 

Economic Cooperation and Development found that private markets are still unable to comprehensively cover the large losses that 

could result from terrorist attacks. 

Despite the Administration’s preference against extending TRIA 

in its current form, last week’s terrorist attacks in London highlight the genuine need for us to do so. Terrorism is unpredictable. 

Many others, including regulators, trade associations, insurance 

risk experts, and commercial mortgage investors have also called 

upon the Congress to act expeditiously in these matters in order to 

prevent short-term market disruptions. We need to heed their wise 

advice. 

In debating any plan to extend TRIA, we ought to work to incorporate group life insurance. These products, after all, have characteristics similar to commercial property and casualty insurance in 

that there is often an excessive concentration of risk within a small 

geographic area. 

Today, I also hope that Secretary Snow will expand upon the 

need for the reasonable legal reforms the Administration is requesting in any TRIA extension. I am very concerned that such a 

posture could once again stall legislative efforts as it delayed consideration of the original law. 

I should also point out that, to the best of my account, we have 

six legislative weeks left in this term. And since we have had this 

law in effect for almost 2-1/2 years without a comprehensive program better styled to meet the needs and suggestions of the Administration, I am leery of the fact that, within the next 6 weeks, 

such a comprehensive change could adequately be made. 

It would be most unfortunate, in my opinion, that we lolly dolly 

around over the next 6 weeks and then realize that we are not 

going to have an extension of TRIA and we are just going to allow 

it to lapse, to the like of some elements of our society, but I think 

6

detrimentally to most elements of our society. So I look forward, 

Mr. Chairman, recognizing that time is of the essence, to move 

quickly. This is not a Democratic or Republican issue, if I may say 

to the Secretary, Mr. Secretary, I am a Democrat and I represent 

a working district. My telephone has not been ringing off the hook 

on this issue. The people I am talking to are commercial developers, investors, insurance companies, and people that generally 

are associated with your side of the aisle, if I may, sir. But, I assure you that in my position, and I think I speak rather broadly 

for the Democratic Caucus, that we see the need to get this done. 

This, again, is not a Democratic issue and it is not a Republican 

issue. It is an American issue, it is a business issue, it is an economic security issue. Therefore, I look forward to working with you 

and the Administration and my colleagues on the other side of the 

aisle to get something done in the next six legislative weeks. Thank 

you. 

The CHAIRMAN. The gentleman’s time has expired. The Chair 

yields the 2 minutes I had left to the gentlelady from New York, 

Ms. Kelly. 

Ms. KELLY. Thank you, Mr. Chairman. 

The recent Treasury Department report confirmed that TRIA 

lowered premiums and increased uptake rates in cities at risk of 

terror attack. However, the transmittal letter for the Treasury report indicated that TRIA should only be extended for 2 years. It is 

an unfortunate reality that al Qaeda operatives and others will 

likely be plotting against us for many years to come. The recent 

London attacks also show that insured losses might not be the best 

indicator of changed conditions in an insurance market. Any 

change to the TRIA trigger should include casualty trigger so that 

mass casualty low property loss attacks cannot dry up the provision of insurance for a region or an industry. 

I am troubled by the Treasury Department report’s assertion 

that commercial real estate is not a sector of the economy worthy 

of stimulus. According to the Department of Labor, construction industries will create more than 1 million new jobs in the next decade. According to the President, 15 billion in construction, which 

stopped after 9/11, was ultimately restored by TRIA. Failing to 

make a terrorism reinsurance permanently available leaves our 

economy, our jobs, and our well-being more vulnerable to the designs of the terrorists who hope to destroy our economic strength. 

I yield back. 

The CHAIRMAN. The gentlelady yields back. We now return to our 

distinguished witness and only witness today, the Secretary of the 

Treasury, John Snow. Mr. Secretary, again, welcome back to the 

committee. And please feel free to give your statement at any time 

you are comfortable. 

STATEMENT OF JOHN SNOW, SECRETARY, UNITED STATES 

DEPARTMENT OF THE TREASURY 

Secretary SNOW. Thank you very much, Mr. Chairman, Ranking 

Member Frank, Mr. Kanjorski, Congresswoman Kelly, Chairman 

Baker, I appreciated your opening comments. 

The issue we face here, it seems to me, is getting the balance 

right, as risks are shared in a public-private partnership that was 

7

put in place by TRIA in the first place, and now we have an opportunity to see how it can be revamped to better serve its original 

purposes, which the Treasury Department report, of course, says 

were well achieved; that this was legislation well designed to advance an important public interest, stabilizing the insurance industry, helping the economy, and providing for coverage that otherwise 

wouldn’t have been there. I think we probably would all agree 

there. 

The question now is, has the market advanced, as we think it 

has, to a further state of development and maturation where the 

private insurance industry can play a larger role? Where that sharing of the risks between the private sector and the taxpayers can 

be shifted a little bit more, somewhat more to, I think, as you were 

suggesting, Chairman Baker, more to the private sector. 

We have seen the private sector expand and play a much more 

robust role here over the last 3 years. That is the basic conclusion 

of our report; I think it is the conclusion of the CBO report as well. 

By giving the marketplace a larger role here, we are confident that 

coverage will continue to expand, that we will encourage innovation, and we will encourage creativity. We probably all would agree 

that the private sector should do what it can do, and where it can 

operate well, the Federal Government and the taxpayer responsibility can recede. That is basically what we are saying here. And 

we have laid out some areas in which we think the program can 

be revamped, and can be improved. Raising the trigger point is one. 

Another is raising the deductibles, raising the co-pays some, and 

putting in place a stronger litigation environment. Those are the 

essence of the reforms that we are proposing. 

In the aggregate, what they do is build on the model that Congress put in place back in November of 2002, a good model, a model 

that was then intended to be temporary, a model that was intended 

to let the marketplace expand and play a larger role. And I think 

that process should be very much continued with the action that 

I hope you will take here in reforming the program, revamping it 

so that we can encourage the most creative and cost effective 

means of covering terrorism insurance. We recognize the need for 

terrorism insurance; we want to see it provided in a way that is 

most creative and most cost effective. And with that, Mr. Chairman, I thank you very much for the opportunity to appear before 

you. 

The CHAIRMAN. Thank you, Mr. Secretary. And we will make 

your full statement part of the record, without objection. 

[The prepared statement of Secretary Snow can be found on page 

49 of the appendix.] 

The CHAIRMAN. Let me ask you, I notice particularly in the report and your testimony the desire for creating a system that 

would encourage innovation in the private sector. And I suspect all 

of us, to some degree or another, share that. What did the Department have in mind as to what type of innovations could conceivably 

take place in the marketplace? And the reason I ask that is because it was my assumption all along when we were working on 

the existing legislation, TRIA, that once the market was stabilized 

and you had this backup from the Federal Government, that the 

reinsurance industry would become much more active and get back 

8

into the game. Your report indicates quite the opposite, and I have 

to say that I was in error on that assumption. Is it not the key to 

this entire exercise to somehow figure out a way that the reinsurers, who, after all, insure the insurers, to somehow come back 

into this game? Do you have some thoughts on that? 

Secretary SNOW. Yes, I do, Mr. Chairman. And I think you have 

put your finger really on the essence of what the report is dealing 

with. 

The Government occupies the reinsurance role here, primarily. 

That is the role that Congress gave to the Treasury. And while 

there has been some expansion of reinsurance particularly among 

smaller and medium-size insurers to cover their co-pays and 

deductibles, I don’t think the market has developed as robustly and 

completely and as fully as we would have anticipated or hoped for. 

And one reason I think there is crowding out occurring is because 

of the large role, the subsidized role really that the Federal Government plays in the reinsurance world. So as we raise deductibles 

and co-pays and trigger points, I think that is naturally going to 

lead to the reemergence of a larger role for the reinsurance industry. 

The CHAIRMAN. Would it be, one of the things that we are wrestling with is that very issue, and obviously the committee will want 

to hear from the reinsurance industry as well as the primary insurance industry just to see what would bring that about. I can understand what you are talking about in terms of raising the co-payment, raising the deductibles and retention levels to the point 

where you have got a band in which the reinsurance folks can get 

into. And I guess that is what we are going to wrestle with over 

the next few weeks to try to do this. 

I am committed to delivering a bill to the House Floor this year. 

I think it would be the height of irresponsibility on our part as legislators to allow the TRIA to expire. I think the potential for damage to the economy is large. I think the President deserves a great 

deal of credit for his leadership on this issue. And if not for the 

President raising this to the highest level at the time that we 

passed legislation, we would not have passed that legislation. 

This was historic in that respect. And now that we are in the 

waning months of this Act, at least from my position as Chairman, 

I just feel enormous responsibility to move the bill forward. And I 

am not going to prejudge what it looks like; we will have an enormous amount of input on the part of the committee and a great 

deal of interest on the part of the committee. But at the end of the 

day, at least this Chairman is going to deliver a bill. And we want 

to work with Treasury, we want to work with anybody in the private sector who has some good ideas, but at the end of the day, we 

are going to mark a bill up, and I think that to do otherwise would 

be a big mistake from a substantive standpoint clearly. 

Let me ask you about one other issue. The approach that Chairman Baker insisted on, which was controversial at the time, which 

was essentially to provide that the taxpayer essentially be reimbursed for any losses, I think, given the history of this Act, was a 

very positive step in the right direction. It disarmed a lot of critics 

that were supportive of the taxpayer and the like, and I think 

Chairman Baker deserves a lot of credit for being one who really 

9

stuck to his guns on this and ultimately was in the legislation. And 

I suspect that to get a bill again this time we are going to have 

to revisit—not revisit, but to essentially go along the same lines 

that we did before. Has the Department taken any particular position on that aspect of the current legislation going forward? 

Secretary SNOW. Mr. Chairman, we think that the recoupment 

provisions are an important part of the framework that exists, and 

we certainly encourage the retention of those recoupment provisions and would look forward—let me—back to your earlier comment about wanting to get something done. We certainly do, too, 

and want to work with you and the committee to see that something happens this year in a timely way, exactly. 

The CHAIRMAN. Thank you. And I appreciate that. And I think 

the thing that the committee needs to understand is a lot of the 

criticism that went on before, and I think that the gentleman from 

Massachusetts mentioned specifically, that at the end of the day, 

this is not about the insurance companies or a boondoggle for the 

insurance companies, it is all about the economy and protecting 

against a catastrophic loss. And it just seems to me that, based on 

past experience, that obligation is pretty well evident. 

The Chair has exceeded its time. The gentleman from Massachusetts. 

Mr. FRANK. Thank you, Mr. Chairman. I am very pleased and 

not surprised to hear you say that you expect that we will be able 

to have a bill. I would say, based on the functioning of this committee, I am confident, given our history, that we will be able to 

produce a very good bill and maybe we will even get it to the Floor 

of the House. But I don’t want to get too optimistic about what will 

happen. But I do think we will get this consensus. And, again, we 

are talking here about the end users more than the insurance companies. And as I said, I agree with the Secretary that it that is not 

a macro-economic issue, but it is an important micro-economic 

issue for some segments of our economy. 

But, Mr. Secretary, I know there are some people, not yourself, 

who are just philosophically opposed to the whole notion of the 

Government being involved here except on an emergency basis. 

And they say, well, you know, after a while people should be able 

to get used to this. 

Now, I am not a great biblical scholar and I don’t want to provoke a controversy, but I do know that the first flood of note happened a long time ago to Noah, and certainly floods are nothing 

new in our economy. By the logic that says we shouldn’t extend 

TRIA, should we not also abolish Federal flood insurance? 

Secretary SNOW. Well, that is not a position we are advancing. 

Mr. FRANK. I understand that. But it does seem to me that the 

notion that we should only do it transitionally and the private market should be able to do it I think is rebutted to me by the notion 

of flood insurance; that there are some costs that are hard for a 

human being to avoid. Although I think we on this committee can 

take credit for a rationalization of the flood insurance program the 

Chairman and I insisted on and we had a good bipartisan effort 

and did our best to make it less burdensome, but it does seem to 

me that it is not new to say that there are some risks beyond 

10

human control, beyond our own control that should be dealt with 

and I appreciate that. 

I do agree we should be dealing with the questions of the co-pays 

and the deductibility. I have to say to many of us the important 

thing to do is to get this in place so that the economy can go forward. If we have this kind of terrorism attack, if we do have that 

kind of disaster, frankly, the level of the co-payment I don’t think, 

is going to be our major concern. In other words, I think the most 

important thing to do is to get this enacted in a reasonable way 

so it does not become a hindrance to economic development in the 

big cities and to the other kinds of things that we are doing. 

But I do have one question, on your statement. You do state the 

Administration supports reasonable performance to make sure that 

injured plaintiffs can recover against negligent defendants. And I 

guess no Administration statement or policy on almost any issue 

would be complete without a denunciation of ‘‘unscrupulous trial 

lawyers’’. I think unscrupulous trial lawyers is one word in this. 

Now, I hope that is not being made a condition precedent to 

passing the legislation. For one thing, we don’t have jurisdiction 

over it. And I know there are broader issues. I don’t think we want 

to let the tail wag the dog. I mean, whatever debates people have 

about the tort system, I don’t think you say that this is the way 

that you deal with the whole thing. 

So if this committee were to come forward in the bipartisan way 

we have often operated with an appropriately revised version of 

TRIA, does that mean, unless there is a considerable rewriting of 

the tort system in other committees, that this doesn’t go forward? 

Secretary SNOW. Mr. Frank, Congressman Frank, we hope that 

the committee, and the Judiciary Committee as well, could do as 

much as possible to revamp it in ways that strengthen the program. So we want to work with you to do as much as possible. 

Mr. FRANK. And this is the obvious, but I think we ought to 

make it clear. To date, the cost to the taxpayer of this program has 

been what? 

Secretary SNOW. We have not had any incidents under the terms 

of TRIA. 

Mr. FRANK. So zero. 

Secretary SNOW. Zero. 

Mr. FRANK. And that is the point. The main goal here is to deal 

with this, to try, to the extent that we can, to neutralize the threat 

that terrorism poses to important segments of our economy, not to 

the overall economy. But I think that is what we ought to be clear 

about. And that is why, this is not some favor we are doing the insurance industry, this is an effort to prevent this threat of terrorism from paralyzing important segments of the economy. 

I have one last question. And I mean this quite seriously. A lot 

of this has to do with the ability of the reinsurance industry to step 

up. These have not been the best of times for the reinsurance industry these days. Some of them seem to me to be distracted by 

some other factors. Are they well prepared at this point to make 

major efforts? I mean, there is some turmoil now going on in the 

reinsurance industry that we read about. 

Secretary SNOW. Congressman, I think that there is more room 

for them to do more. You referenced theology earlier. I don’t view 

11

this as an issue of theology, really, I view it in I think the same 

way you and the chairman do and others. This is a matter of taking a good Federal Government program that has worked well, and 

looking at it and seeing if we can make it work better. And I think, 

until we give the market some more room to operate, we aren’t 

going to know whether it can do more. That is— 

Mr. FRANK. But we do go forward with the program, is your general— 

Secretary SNOW. Yes, with the revisions we have suggested. 

Mr. FRANK. Thank you. 

The CHAIRMAN. The gentleman’s time has expired. The gentleman from Louisiana, Mr. Baker. 

Mr. BAKER. I thank the Chairman. With regard to the flood insurance program, just for the record’s accuracy, Mr. Secretary, isn’t 

it true that it is a premium funded program, and every dollar paid 

out over time has been repaid from premium flow plus interest 

when a credit was extended and when the funds were deficient? 

And if we could model a reinsurance program that would ensure 

the taxpayers that every nickel would be paid back plus interest, 

this bill would probably get out of committee a lot quicker if we 

had those kind of guarantees. And I think, at least from my own 

perspective, one of the concerns is writing a $10 billion check to the 

industry when they have a $10 billion profit. In my slow—folks like 

me kind of figuring out that maybe the taxpayers have given insurance executives a little bump when they perhaps weren’t entitled 

to it. 

Now, I have a few concerns about information in the report, myself. For example, it appears that there has been more consolidation in the reinsurance industry rather than growth, which leads 

to some concern; that the trigger levels recommended may be a bit 

high, particularly in rural or a small community where you would 

have a $500 million event where you could probably buy most of 

Louisiana for that. And, if you did, you would take out most of my 

small insurance operators, which I don’t think is the intended consequence. 

So there has got to be the screens through which this triggering 

device sit, as distinguished from a New York City event which 

could easily exceed the triggers, versus communities which could be 

significantly dissipated and not get close. 

We created this remedy out of whole cloth for the patient we had 

at the time. What has now happened is the suit is sagging a little 

bit in a few places and we need to do some alterations. For example, I think the repayment provisions which the chairman was so 

kind to make reference to could easily be strengthened and give assurances to those worried about taxpayer position that we could absolutely guarantee repayment. What is now contained in the bill is 

a possibility of repayment should the Secretary decide to assess 

premiums that are capped in a certain way over a certain period 

of time. A lot of wheels and spinners. I helped write that, and I 

think it could be made a lot better. 

The thing that I stumbled across and I needed to get an explanation from you, Mr. Secretary, about that I don’t know exactly 

how it fits in the overall view of the Department, but this is the 

language: Given the small size of nonresidential and commercial ofVerDate 0ct 09 2002 10:34 Sep 18, 2006 Jkt 029460 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 F:\DOCS\29460.TXT HFIN PsN: TERRIE
12

fice construction, stimulating this sector would be neither effected 

or warranted. What does that mean? Does that mean that Treasury 

has reached the conclusion that commercial property market would 

remain healthy without a TRIA? 

Secretary SNOW. No. What that is a reference to is that TRIA 

does not seem to be directly linked to the performance of that market sector. Even with TRIA, you know, the market sector has not 

come back anywhere close to the peak. And even with the good recovery that we have had over the last couple of years, the nonresidential construction industry has lagged. So in the presence of 

strong economic recovery and TRIA coverage, we have not seen a 

response there that, while it has grown some 3 or 4 percent, it is 

not anywhere close to where it was before. That is the only point 

we were making. 

Mr. BAKER. Well, let me follow up. If we were to proffer a proposal which had significant guarantee of taxpayer repayment, some 

modification of the triggering mechanisms as outlined in the report, 

maybe some creative retention system that could be altered from 

the original proposal, wouldn’t we be getting pretty close, given the 

view that something needs to be done but the current plan is not 

going to be reauthorized as it is, it is not a responsible remedy to 

the problem as now identified? And there is great interest, I take 

it, from the Treasury in moving forward, in getting resolution on 

this before the end of the calendar year. Is that fair? 

Secretary SNOW. That is absolutely true. 

Mr. BAKER. Thank you, Mr. Secretary. 

Secretary SNOW. And we would look forward, Mr. Chairman, to 

working with you on those ideas and reforms that you suggested. 

Mr. BAKER. I yield back. 

The CHAIRMAN. The gentleman yields back. The gentleman from 

Pennsylvania, Mr. Kanjorski. 

Mr. KANJORSKI. I am not sure, Mr. Secretary, what we are talking about. Do you see a lapse in the reinsurance business coming 

into the field? I see that the Reinsurance Association of America 

has indicated that private reinsurance market is currently only 

providing $4 to $6 billion of terrorism reinsurance capacity as compared to about $100 billion under TRIA. That is 4 to 6 percent of 

the field that is being covered by the private insurance industry. 

Is there a reason that you think that TRIA may be retarding that 

development? 

Secretary SNOW. Well, I do, Congressman. TRIA really has the 

Federal Government occupying the reinsurance space. It has put 

the Treasury Department in the position of being a reinsurer and 

basically subsidizing the reinsurance costs. So that has had, I 

think, some impediment, some impeding effect on the reinsurance 

industry. And what we are suggesting is that as the Treasury Department recedes some from that area, still keeping the backstop 

but recedes some, it will create more room for the reinsurance industry. And it is our expectation then that you would see the reinsurance industry gain more coverage. 

Mr. KANJORSKI. So, it is your sense that part of this failure of 

the private market to fill this vacuum or void that exists is that 

they need a stimulant in some way? 

13

Secretary SNOW. I think that, as the Government recedes, you 

will see the private sector move in more. 

Mr. KANJORSKI. But in your prepared remarks, you talk about 

that happening over years. That is not going to happen between 

the time this law expires and if we don’t do something. 

Secretary SNOW. No. Over the next few years, if the sorts of 

changes and reformatting that we have talked about occur, I think 

you will see, we have full expectation, you would see the reinsurers 

step up more and take over more. 

Mr. KANJORSKI. In the past when we have seen vacuums and 

voids created in the private market, there have been various theories and methodologies used to stimulate entities filling that vacuum or void. Maybe I could suggest, if we want to stimulate the reinsurance industry in America, let us have a Government-sponsored enterprise take over there to be a Fannie Mae or Freddie 

Mac of reinsurance. That ought to stimulate the hell out of them. 

Don’t you think? 

Secretary SNOW. I am not sure I would want to recommend going 

down that road. 

Mr. KANJORSKI. I don’t think there is any difference. I mean, 

quite frankly, we were frustrated and waited for our leadership to 

introduce a bill. Although they did not, I think we finally did it in 

March, and it has been languishing. We haven’t had a hearing on 

it. We have instead been waiting for your report. You know, I leave 

it up to the experts, Mr. Baker and the Chairman, to fill in the 

voids. If they want to up the caps, if they want to do some nice 

things, that is fine. 

Now, if they want to make this an engine for tort reform, I think 

that is dead on arrival. We had that experience under Secretary 

O’Neill for a year when the Administration decided they were going 

to use this legislation to do tort reform. 

I would just give my own impression. That is not a smart idea. 

If that happens, I don’t think we will see a bill on the President’s 

desk this year. And, quite frankly, I am not sure whose ox is going 

to get gored, but I don’t suspect the Members on this side of the 

aisle are getting tremendous calls from these people that need terrorism reinsurance for business purposes. 

I would just like somebody to take the bull by the horns and let 

us get the job done. Can we expect you and your Department to 

have a piece of legislation up here redrafted in such form that can 

expect to have the President’s support for it and that we can move 

it? Or are you waiting for this committee to draft legislation? Who 

is waiting for whom to do what as time ticks on? 

Secretary SNOW. We are prepared to be of service in any way we 

can, Congressman. 

Mr. KANJORSKI. Then next week we should look forward to a 

comprehensive reinsurance bill prepared by the Administration 

that some soul on the other side can introduce as the bill to move 

through Congress? Is that what you see? Just everybody is saying, 

‘‘Gee, we are all for it, we are all for it’’, and time is going. Six legislative weeks remain. That is it. 

Secretary SNOW. I accept that. I think the modifications we are 

suggesting are easily draftable. We would be happy to put a pencil 

to paper and work with the legislative staff who do the drafting; 

14

they would be better at it than we would. But we could certainly 

make an effort at it, and would certainly work with you and the 

Chairman and others to make sure that we do our part to meet 

this timetable. 

The CHAIRMAN. The gentleman’s time has expired. The 

gentlelady from Ohio. 

Ms. PRYCE. Thank you, Mr. Chairman. And, Mr. Secretary, welcome to the committee. And thank you so much for all the work 

that has gone into this. 

Let me ask you, Chairman Greenspan testified not long ago that 

he is not yet convinced that terrorism risk is insurable, and yet you 

folks at Treasury are calling for reduced Federal participation. I 

don’t think that there is anybody in this room that would disagree 

that you are both gentlemen of incredible intellect and impeccable 

judgment, and how could you two feel so differently about this? 

Secretary SNOW. Well, I am not sure we do, Congresswoman. I 

think we both recognize the private sector ought to be allowed to 

work wherever it has a reasonable chance of working. I think the 

Chairman would accept that characterization. And in the case of 

terrorist risks, I think we both accept the TRIA model—that there 

are risks of such a scale that aren’t modelable—and of such size, 

that it is very difficult at the present time for the private insurance 

industry to properly assess the risks in order to be able to provide 

coverage. And that is the TRIA model. All we are saying is that 

within the TRIA model, we think you can move a little further in 

the direction of letting the marketplace work. 

Ms. PRYCE. Well, let us talk about modeling for a minute. You 

know, you were very specific in saying that the industry does have 

big challenges in modeling, and the probability of loss from terrorism is very hard to get our arms around. Why is that so, and 

what is there to be done? Can we do more to encourage the scientific development of models? Should this be a part of our bill? Is 

there more that we can do to see this come to fruition, or is it just 

an incalculable impossibility at this point? 

Secretary SNOW. You know, I think in dealing with terrorism 

generally, we are being forced to confront something we haven’t 

known in this country well before, it is fairly new to us, and it is 

extraordinarily hard to predict. And since we haven’t had a lot of 

experience with it, I am sympathetic to the problem the insurance 

industry has of trying to put in predictable models, models of predictable events. I think they are getting better at scalability; they 

are getting better at trying to figure out, if this happens, what is 

the overall impact. 

But no, I agree with your basic premise here, that the modeling 

isn’t yet developed, and it is a question of how it will develop to 

the point that we can really assess these things the way you would 

assess other sorts of risks that insurance companies freely write 

policies for. 

Ms. PRYCE. If we took NCBR out of it, would it be any easier if 

we made that a separate category? 

Secretary SNOW. I think NCBR, given our limited experience 

with it in the United States, doesn’t give us a framework for the 

sort of modeling that the insurance industry normally would do. I 

mean, we should be thankful that we don’t have much NCBR expeVerDate 0ct 09 2002 10:34 Sep 18, 2006 Jkt 029460 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 F:\DOCS\29460.TXT HFIN PsN: TERRIE
15

rience. It is almost de minimis in this country. And we are going 

to continue to work through Homeland Security and others in intelligence to make sure it is de minimis. But the fact that it is de 

minimis is the other side of why we can’t do the models to figure 

out how to lay out the risks more fully. 

Ms. PRYCE. I mean, I am not expert by any means, but National 

Journal did a piece on what would happen if there were a nuclear 

attack between the White House and the Capitol building, and 

then laid out scenarios as to what damage—and certainly, I am 

certain it wasn’t very scientific. But if they can get started, I know 

that there is the technology and the science available. And I just 

wonder if there isn’t anything we as a Government can do to encourage this, to speed up the process. And you probably have already answered me, but if anything comes to mind, please let us 

know. 

Secretary SNOW. I will. 

Ms. PRYCE. Thank you very much, sir. I yield back. 

The CHAIRMAN. The gentlelady yields back. The gentlelady from 

New York, Ms. Maloney. 

Mrs. MALONEY. Thank you very much, Mr. Chairman. 

And welcome, Secretary Snow. As one who represents New York 

City, I can tell you that, after 9/11, truly the most important action 

by Government that helped the people was TRIA. Business didn’t 

move, development didn’t move, nothing moved until we had the 

insurance in place. It is critically and tremendously important not 

only for New York, but I would say every city across this country 

and county. And I would just like to say, Mr. Secretary, that your 

report really makes me wonder whether the Administration is talking about the same Nation that I live in. Certainly your report is 

not talking to the people who run businesses in this country or the 

insurance industry or even your own terrorism experts. 

The Administration tells all of us to prepare for another attack, 

but you propose to take away our ability to be financially prepared. 

Your report advocates raising the level at which TRIA would kick 

in to a point at which an event 10 times the size of September 11th 

would receive absolutely no TRIA coverage. There is not enough 

capital in the entire industry to cover an event of that size. In fact, 

the industry would be severely stressed by an event three times the 

size of 9/11. 

If we as a country do not renew TRIA at a reasonable threshold 

level, terrorism insurance will simply not be available. You say, oh, 

go draft a bill, or we will have a bill up there. It is not having a 

bill here, it is whether or not it is workable, whether or not terrorism insurance will be available. And it will not be available at 

the threshold amounts in the report. That means that if we have 

another terrorist attack, God forbid, the taxpayer will bear the full 

brunt of the cost. 

I have been talking to people not only in New York, but across 

the country about the damage that they would suffer without 

TRIA, and I think that you should talk to them, also. For example, 

one of my constituents in New York, Lisa Cramer, is the CEO of 

FOJP Service Corporation which obtains insurance for several New 

York City hospitals and medical facilities that provide services, 

necessary services to literally millions of New Yorkers. She was 

16

planning to be here today, she wanted to talk to you directly, but 

due to the weather, the planes and transportation was cancelled. 

But she told me this morning that, after 9/11 and before TRIA was 

enacted, the property casualty insurance marketplace became an 

absolute nightmare for these hospitals and medical facilities. Their 

property insurance limits dropped from $8 billion to only $1 billion, 

and terrorism exclusions were added to all of the policies. 

Pre-TRIA, the only coverage for terrorism losses they could ob- tain was for $50 million and limits at a premium of $4.2 million. 

With TRIA in effect, they secured property coverage with full terrorism protection at limits of $1.5 billion and a premium of $1.2 

million. Without the renewal of TRIA, the maximum coverage they 

can secure for terrorism losses will be only $500 million, and the 

premiums will triple. 

That is unworkable. Premium increases of this nature are simply 

not affordable for these hospitals and, I would say, for any business. Moreover, even if the money could be found, the maximum 

available insurance limits of $500 million would not be sufficient 

to replace even one hospital in a terrorist attack. 

Mr. Secretary, my question is, what do you have to say to these 

hospitals and the people that they serve and what do you have to 

say to my constituents and other constituents across this country? 

I have here also today Rick Barne from your State. He is a vice 

president of Corporate Insurance Management, which is located in 

Alexandria, Virginia. He has a client that owns and leases about 

40 buildings in northern Virginia to the Federal Government and 

large corporations. Some of these buildings are located at the Dulles Airport. 

Based on the scrutiny insurance companies give to these factors, 

without an extension of TRIA, it will be very difficult for this property owner to find affordable and adequate coverage. He may go 

out of business and his tenants may have to move. 

The CHAIRMAN. The gentlewoman’s time has expired. 

Mrs. MALONEY. May I just place in the record, if I could, Mr. 

Chairman, letters that I have gotten, even from your State, Ohio, 

and Virginia, Mississippi, Louisiana, from people who are bringing 

to our attention the absolute necessity of reenacting TRIA. If I 

could, because I think it is very, very helpful to— 

The CHAIRMAN. Without objection. 

The CHAIRMAN. The Chair now recognizes the gentleman from 

California, Mr. Royce. 

Mr. ROYCE. Thank you. 

Good afternoon, Secretary Snow. It is nice to have you back before the committee. We have talked before about antiterror finance 

policy, which is within your jurisdiction. Given some recent developments, I am going to take the opportunity, if I could, to ask you 

about something we have been concerned about for some time, and 

that is the massive amount of funding that terrorists are receiving 

on a global basis. We have taken some action in Congress, indeed 

in this committee, where with the PATRIOT Act, under section 311 

we said Treasury can impose special measures on a foreign jurisdiction such as a country or a financial institution, and in so doing 

then section 311 would essentially close any access to the U.S. financial system for anybody so designated. 

17

So I would like to know why Treasury has not imposed 311 sanctions on Syria. In testimony this morning before the Senate Banking Committee, Under Secretary Stuart Levy strongly condemned 

Syria. I will just lay out his argument. 

He said as a serious national security threat and as a state sponsor of terrorism, Syria has been the object of targeted Treasury action for some time. Syria continues to meddle in Lebanon’s affairs, 

allows the Iraqi insurgency to be partially funded and fueled from 

within its borders, and allows terrorist organizations and supporters to flourish there as well. 

At Treasury we are addressing this threat with a spectrum of 

targeted actions aimed at reversing this course. 

Well, as he says, you have issued a 311 against Syrian banks, 

against some senior Government officials where you have frozen 

their assets. But when it is clear that the terrorist financing is a 

systemic issue, as it is in Syria, why haven’t we taken action 

against the entire jurisdiction? That is my question for you today. 

Why are we holding back on what would seem to be an obvious 

case for 311? 

Secretary SNOW. Congressman, thanks for the support you have 

given us, and Congresswoman Kelly as well, over the years in 

these efforts. Syria is troublesome to us, as Under Secretary Levy 

indicated. We do have the pending 311, and the pendency of the 

311 under the Patriot Act has produced some—not sufficient, we 

are not satisfied—but some actions. We are talking with them now 

about some other things they need to do, including returning substantial sums of money that belonged to the Iraqi people. We have 

had some success. They have sent back some and we are hopeful 

to get more. 

Let me assure you we are far from satisfied, but they have taken 

a number of steps, and I can detail them for you at some other 

point, if Mr. Levy didn’t today send you a note on it, that are in 

the right direction. Far from all, but they are in the right direction. 

It is a situation we are continuing to monitor. We are not at all 

happy with a lot of their conduct, let me assure you of that. We 

have had delegations of people from Treasury over in Damascus 

and are continuing to be in close touch with them. Maybe that is 

all I should say for the record right now. 

Mr. ROYCE. Well, I appreciate that, Secretary Snow. I think it is 

important that regimes understand that section 311 is a tool that 

can and will be used. In this particular case, if we do not get some 

relief in terms of the funding of the insurgency operation there or 

the allowing of that to be conducted on Syrian soil, as well as a return of the funds, I think—and more transparency in the process—

I think it would be quite appropriate. So I wanted to use this forum 

for an opportunity to have a dialogue with you on that, Secretary 

Snow. 

Secretary SNOW. I appreciate your doing that. Let me assure you, 

we are working this issue hard. We are not at all happy with Syrian behavior. We have observed financial wrongdoings on their 

part, including terrorist financing, and we intend to use 311 for the 

purposes for which you created it. 

The CHAIRMAN. The gentleman’s time has expired. The gentlewoman from California, Ms. Waters. 

18

Ms. WATERS. Thank you very much. I am sorry I was delayed. 

We have a markup going on in Judiciary. I am delighted Secretary 

Snow is here. I know that the presentation that he prepared for 

today had to do with the terrorism risk reassurance program, I believe. However, I am fascinated with the line of questioning and 

discussion of my colleague from California. 

While he has indicated his concerns about Syria, I suppose I 

should just share with you that some of us are just as concerned 

about Iran and just as concerned about Saudi Arabia and just as 

concerned even about Pakistan, where we have friends. We have 

just lost I think—I think the number is 20, Congressman Frank 

just indicated, as we talked about what happened on the border between Pakistan and Afghanistan, that we believe that insurgents 

and terrorism is emanating from all of these areas. Some we have, 

I suppose, greater relationships with than others and think we 

have friendships that will protect us from some of these terrorist 

acts. 

But while we are talking about Syria, let us talk about Saudi 

Arabia and Iran and the borders of Pakistan and Afghanistan. 

What are we doing to ensure that these terrorist acts are not 

emanating from these areas that is creating more of these problems? 

If I may, just a continuation of the discussion you were just having with my friend from California. 

Secretary SNOW. Thank you very much, Congresswoman. We are 

very much engaged with the countries, with Saudi Arabia, Pakistan and others, on the whole issue of terrorist financing. I have 

traveled to those countries, talked to the leaders of those countries, 

the Finance Ministers, the Prime Ministers, the ruling family, 

about our concerns on precisely the issues that you have raised. 

In all of those places with whom we are engaged, we are not satisfied, but we are seeing progress. Saudi Arabia has put in much 

better controls over their charities. They are watching the money 

that goes through the charities. In Pakistan, they have put in 

much better rules to deal with the entities they call the hawallas, 

the money changers. 

Ms. WATERS. If I may interrupt you for just a moment, do we 

know the members of the royal family who are directly involved in 

funding some of the so-called charities? Do we have that database 

put together yet? Because much of the money coming from there 

and to the madrassas are coming from members of the royal family. Do we know that information? 

Secretary SNOW. We have some information about the sources of 

that, and have shared our knowledge, or at least our intimations, 

with the Saudi leaders; and the Saudi leaders have taken a number of steps against those people. 

So this is a continuing effort on our part. We have people located 

right now as part of this effort in Saudi Arabia working in concert 

with their antiterrorist groups to identify and go after terrorist financing. And we are going to keep that up. It is very important we 

keep that effort up. I appreciate your raising it. I agree with you. 

Ms. WATERS. Thank you very much. I yield back. 

The CHAIRMAN. The gentlelady yields back. 

The gentlelady from New York, Mrs. Kelly. 

19

Mrs. KELLY. Thank you. 

Secretary Snow, one of the questions we ought to consider in approaching this is why should the war on terror be treated differently from previous more traditional wars where the Government reimburses for damages inflicted by the enemy? I think we 

all realize that we are in a fight to the finish against a dedicated 

enemy. 

In World War II, the Government didn’t expect private insurance 

to pay the costs associated from enemy attacks on our soil, and I 

know that we all feel that defeating terrorism is no less important 

than defeating the axis powers. Surely we would not expect the private insurance industry to protect us if we thought that we would 

be attacked by an enemy with an organized military. We really 

need to ask ourselves what is different about this situation today. 

When the TRIA law was passed in 2002, we didn’t know half of 

what we know now about the enemy and its resolve. We all now 

acknowledge that the war on terror will be with us for a long time. 

It is a long-term war, and I firmly believe that we need a long-term 

solution to the terrorism insurance problem that is going to provide 

our economy with the stability to keep on growing and protect our 

citizens and their businesses from catastrophic loss when another 

major terrorist event occurs. 

According to your transmittal letter, the report was based in part 

on surveys of the insurers and policyholders that were developed 

after extensive consultations with the National Association of Insurance Commissioners, policyholders, the insurance industry, and 

other experts in the insurance field. 

Secretary Snow, this committee has also taken testimony from 

each of these groups, and none of them support the conclusions of 

your report. Which agencies have more expertise on insurance? The 

States, who have been regulating insurance for more than a century, or seven employees of the Treasury Department who do not 

administer any other insurance program? 

Your transmittal letter states that the Administration only supports extension of TRIA if taxpayer exposure is minimized. Ironically, the Federal Government, including the Treasury, does not 

include any costs associated with terrorism risk in the budget. As 

a part of your commitment to lowering taxpayer risk from terror, 

will you begin submitting a reserve request for potential terrorism 

losses within your own agency to protect taxpayers? 

Isn’t it unfair to expect American taxpayers to pay the costs associated with self-insuring the Treasury Department? That is the 

question. 

Secretary SNOW. That is the question? Well, that is about six or 

seven by my count. 

Mrs. KELLY. That is okay. You can answer them. 

Secretary SNOW. Let me try and give you a general response, because your question, really as I sense it, goes to the quality of the 

study. I think it is a good study. It is a study that was done in full 

cooperation and consultation with the insurance industry. They in 

fact helped shape the very questions that we presented to both the 

industry and to the users. 

Nobody here is talking about ending that backstop. What we are 

talking about is, as I have tried to indicate, is revamping the TRIA 

20

program in a way that it gives some more room for the private sector to operate. 

Congress has left open in the very TRIA legislation events above 

the $100 billion level as something they would return to surely, 

hopefully, in consultation with whatever Administration would be 

in place. 

So no, I don’t think that is the issue. The issue is can we make 

some improvements in the program to give the private sector a 

somewhat larger role to play; and as long as the Government is 

playing such a large role in occupying the reinsurance space, it just 

stands to reason that the reinsurance industry will not be as vigorous as otherwise would be the case. 

So this is an effort just to get to the middle of the road and find 

a balanced solution here. 

Mrs. KELLY. Mr. Secretary, when you talk about letting the industry take more of a role, that is only going to be passed on to 

the consumers, whatever the costs are, and that is the taxpayers. 

So I again go to my question about how we are going to help the 

taxpayers afford terrorism insurance. 

Secretary SNOW. Actually, Congresswoman, if our reforms are accepted, the policyholders would bear more of the obligation. 

Mrs. KELLY. Exactly my point, sir. 

Secretary SNOW. You said taxpayers. 

Mrs. KELLY. The policyholders are taxpayers. 

Secretary SNOW. They are not in their capacity as policyholders. 

They are taxpayers in their capacity as citizens. This is an effort, 

as I say, simply to modify the program in ways that give the private sector more room. I doubt you would disagree with me on the 

broad proposition that if the private sector can do it, we ought to 

allow them to do it. 

The CHAIRMAN. The gentlewoman’s time has expired. 

The gentleman from California, Mr. Sherman. 

Mr. SHERMAN. Thank you. I would like to make just a couple of 

opening observations. One of those is that as terrible as a massive 

terrorist attack is, a natural disaster can have an equivalent economic impact, and I hope we are not only going to deal with the 

uninsurable or unreinsurable risks posed by terrorism, which are 

new and exciting, but that we also deal with the equivalent need 

for reinsurance or re-reinsurance by the Federal Government for 

massive disasters that are natural disasters. This has nothing to 

do with the fact that Northridge is in my district. 

Second, we should not be waiting to the last minute, which is 

what we always do. This law is going to expire December 31st. If 

you had to predict the outcome, it would be we are going to extend 

TRIA the day before we leave town for the year. 

Now, if we do that, we will have the same costs. The gentlewoman from New York was saying, hey, maybe there is a burden 

to the taxpayer. If we extend TRIA today or do it at end of the 

year, it has the same costs, but it doesn’t have the same benefits. 

Right now there are people thinking about huge projects, projects 

that would employ a lot of people, projects that might get somebody 

to wonder, well, will that be a terrorist target? Some of these 

projects aren’t going forward because people are saying, well, of the 

21

many concerns we have, there is not going to be terrorism insurance. 

So every day that goes by that we don’t extend does nothing to 

reduce the costs or disadvantages of extending TRIA, but diminishes the benefit. And the chief benefit is we want people building 

towers even larger than those that stood in southern New York, 

whether those be in Los Angeles, Chicago, or elsewhere. We want 

people to feel they can build something exciting and get insurance 

for it. 

Mr. Secretary, as I understand TRIA, and may be reflecting, the 

policyholder is not getting something for free. There is a premium 

that the Government charges. Is that either the case now or in the 

proposed changes that you would make? 

Secretary SNOW. Congressman, TRIA does not require the insurance companies to pay a premium, but it does give the Treasury 

Department the authority to recoup some portion of the Federal 

payments in the event of an event; to do a subsequent assessment, 

I think it is 3 percent a year on policyholders thereafter. 

So there is a recoupment process. But you are correct that right 

now there is a subsidy that is being made available by the reinsurance, because Treasury is not charging anybody for it presently. 

Mr. SHERMAN. Now, we have seen what happened in London, 

which underscores what happened on September 11th. In light of 

the continuing and evolving threat, and given that the reinsurers 

are apparently not providing much terrorism reinsurance, are you 

concerned that the insurance market could become more dysfunctional than it was after September 11 if we fail to renew TRIA in 

some form? 

Secretary SNOW. Congressman, we are clear on this one. With 

these reforms, you would have a better product and we support 

doing it. 

Mr. SHERMAN. And if we did nothing, could we, starting the beginning of next year, or perhaps starting after the beginning of 

next year when TRIA expired and there was some other terrorist 

action, huge or medium-size anywhere in the world, could the combination of TRIA being allowed to expire and even a new terrorist 

act—as if we have forgotten the old ones—cause the insurance 

markets to become even more dysfunctional than they were after 

9/11? 

Secretary SNOW. I would urge you to adopt the reforms and move 

the legislation. 

The CHAIRMAN. Does the gentleman yield back? 

Mr. SHERMAN. I yield back. 

The CHAIRMAN. The gentleman from Connecticut, Mr. Shays. 

Mr. SHAYS. Mr. Secretary, I like you. I don’t agree with you on 

this position. I am not sure where your position is, because it is 

that you don’t support it but you will help us write a bill. I guess 

what I am sensing from you is you are not advocating that we do 

a bill, but if we are going to do a bill you wanted to help us write 

it. Is that what you are really saying? 

Secretary SNOW. No. Our view is that we support the reforms. 

We support revamping the program, because we think by revamping it we will create better coverage. We will enlist the private secVerDate 0ct 09 2002 10:34 Sep 18, 2006 Jkt 029460 PO 00000 Frm 00025 Fmt 6633 Sfmt 6633 F:\DOCS\29460.TXT HFIN PsN: TERRIE
22

tor in ways that are more creative and cost effective in covering the 

risks, and with the reforms we are for the extension. 

Mr. SHAYS. So the bottom line is, though, that you would like us 

to write the bill and your folks will work with us? 

Secretary SNOW. We will work with you, yes. 

Mr. SHAYS. Fair enough. Let me ask you, it would strike me that 

a general principle would be that we would ultimately want to 

wean the insurance industry from Government guarantees, but 

that we would have them over a fairly long period of time build up 

reserves but still make policies fairly affordable. 

Is that the logic to this program? In other words, I spent 8 years 

focusing on terrorism, and what I see is that attacks are more likely in the future, and more devastating, and the consequence of 

chemical, biological, even nuclear attacks, is not out of the question. So it is not like in the future there be less attacks, it is more 

likely there will be more attacks as I see it. 

So is the point to just have them start to build up reserves over 

time? 

Secretary SNOW. That would be a piece of it. But another piece 

of it is to give the industry, which is quite innovative and capable, 

and the marketplace generally— 

Mr. SHAYS. I don’t know how to interpret innovative. It seems 

kind of basic. 

Secretary SNOW. The modeling, getting a better assessment of 

things through the modeling, seeing if financial facilities develop 

securitization and other things that offer some opportunity here. I 

am not saying they will be there, but if we don’t create room for 

them, we will never know. 

Mr. SHAYS. Let me ask you, though, if you own an insurance 

comapny or you are managing one, running it, you are the CEO, 

without some guarantee from the Federal Government, aren’t you 

playing Russian roulette with your company, because you may find 

that there is such a potential for devastation that you basically—

your company goes under because of your unlimited liability? 

Secretary SNOW. Congressman, insurance companies will not put 

more than X amount of their surplus in jeopardy. I agree with you. 

That is the way the insurance industry operates. What that means 

is if more than X would be put in jeopardy by writing a set of policies, for terrorism risk insurance or whatever, they won’t write it. 

Mr. SHAYS. If policies are not written, do you think mortgages 

take place and banks are willing to— 

Mr. SNOW. Remember, the TRIA structure stays in place. The 

Government under the reforms that we are talking about, the revamping, the backstop is still there. We are talking about way 

below the backstop trying to get more reinsurance being provided 

through the private market. So the backstop structure is still there. 

Mr. SHAYS. It just strikes me you are basically asking the industry to put up all their reserves. 

Secretary SNOW. No, we would not. That would not be prudential. Far from that. In fact, the very point of study—and your question is taking me right to the heart of the study—is that the insurance industry has developed substantially more reserves now, but 

there are limits on the amount of reserves that a well-run, prudenVerDate 0ct 09 2002 10:34 Sep 18, 2006 Jkt 029460 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 F:\DOCS\29460.TXT HFIN PsN: TERRIE
23

tially run insurance company will make available, and that is how 

the insurance industry must function and should function. 

Mr. SHAYS. Let me just say, my last question is what happens 

if TRIA expires January 1st without a replacement bill? That is my 

question. And my point to you would just be that I know you well 

enough to know—and your Department—that you will be working 

with this committee, and hopefully that will not take place. But I 

will ask you, what would happen if it did? 

Secretary SNOW. I think the best thing is to follow the course 

that you are suggesting and I am suggesting, and I think the 

Chairman is suggesting, and that is to adopt the suggestions and 

move forward with the legislation. 

Mr. SHAYS. Thank you, Mr. Secretary. 

Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman from New York, Mr. Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. 

Mr. Secretary, I am a little bit confused. Let me just pick up 

from what was just stated. You say adopt. I have the confidence, 

as Mr. Frank indicated earlier, and Chairman Oxley, that we will 

come up with a strong bipartisan bill that is coming out of this 

committee. 

Now, you seem to say that you want us to come up with a piece 

of legislation that you have written, adopt it, and make it law. 

What if this committee comes up with some recommendation as to 

how it feels the TRIA law should be, and then it comes to the Administration? Will you then say we must then have a bill so we can 

have it signed by January 1, that we don’t have the expiration of 

TRIA? Or will you say no, it has to be as we want it, as we have 

proposed it? 

Secretary SNOW. Well, I would hope there would be a good dialogue. There has been a good dialogue on a lot of other issues with 

this committee on both sides, and I would hope we continue to have 

a good dialogue, good set of understandings. 

Let me assure you, Congressman, we know that you write the 

legislation, not us. And I have been asked to testify to offer our 

views on what a good outcome might be, and that is all I am doing, 

is giving you our sense of what a good outcome might be. But I 

fully understand that you are going to write the legislation and factor our recommendations in as you think they merit attention. 

Mr. MEEKS. Now, in your recommendations and your testimony, 

one of the things I am trying to decipher—in questions to Ms. 

Kelly, for example—are you concerned at all about what the cost 

of terrorism insurance, the bottom-line cost for the policyholder is? 

You said they are not—she said they are citizens. You said it differently. But the cost that it would come—that the policyholder 

would have to get terrorism insurance, are you concerned about 

that at all? 

Secretary SNOW. Absolutely. Cost and availability are the two 

things we looked at in the study. So they are both very important. 

Because if there isn’t availability, there won’t be the take-up rates 

that ought to occur, and if the price is too high, there wouldn’t be 

the take-up rates. So availability and price are the two determinants of coverage. 

24

Mr. MEEKS. You keep referring to studies you have had, but 

what I have been able to decipher, the studies and individuals I 

talked to, if we go in the direction the Administration would like 

us to go to, the cost would become prohibitive for many individuals, 

affecting—and I think this is what Mr. Sherman was talking 

about—in a lot of the markets, a lot of the economic development 

projects we currently have going on. 

We talk often that we can’t let terrorists and terrorism win. One 

of the reasons why they attacked New York—and a lot of other 

major cities are focused on this—they want to go after us financially and our economy. 

When they talk about TRIA, we are really talking about a program where we should be coming together as a Nation, as opposed 

to ending it and saying, as I believe was stated, that the continuation of the program in its current form is likely to hinder the further development of the insurance market by crowding out innovation and capacity building. 

I don’t see how that is so. I think even while we are working 

here, innovation and the markets and everyone is working together 

so that we will not allow the terrorists to win. We are in Iraq now, 

spending a whole lot of taxpayer dollars, when a lot of taxpayers 

did not want to be there in the beginning. 

Secretary SNOW. Well, look, I agree with you on the basic 

premise as I hear it, and that is we have got to protect the homeland. That is the first line of defense here. 

I talked to Secretary Chertoff this morning on that very score. 

Of course, we put a lot more money into homeland security, and 

developed this comprehensive national strategy for homeland security. That is the first line of defense, good strong, homeland security initiatives, investigating terrorist activity, good intelligence on 

terrorist activity, bringing the whole government together to focus 

on it and the global community as well. 

Mr. MEEKS. So you would agree with me— 

Mr. SNOW. I agree the first line of defense is strong homeland security. 

Mr. MEEKS. You agree it should be the priority of the Administration to make sure that we work and that you work closely with 

this committee to make sure that we do not allow TRIA to expire 

prior to January 1st. 

Secretary SNOW. I think we ought to work to reform it in the way 

that I have suggested, because by doing that we are going to have 

a better TRIA. We are going to have a set of policies in place that 

encourage a more creative and cost-effective means of covering terrorist risks. 

The CHAIRMAN. The gentleman’s time has expired. 

The gentleman from Texas, Mr. Hensarling. 

Mr. HENSARLING. Thank you, Mr. Chairman. Thank you, Mr. 

Secretary. 

I don’t know if I can do it justice, but President Reagan once said 

something along the lines of one of the closest things to eternal life 

on Earth is a Federal program. I, for one, on behalf of the taxpayers, hope I am not witnessing that today with TRIA. Having 

said that, we know all the obvious implications of 9/11, the tragic 

loss of life, the incredible blow to the economy, that we have done, 

25

frankly, a very good job under this Administration of recovering 

from. 

I believe that TRIA played a role in that recovery. I just don’t 

want to see the taxpayers on the hook forever. 

In your written testimony you state that TRIA has been effective 

in meeting its goals of supporting the industry during a transitional period. So to me that is really the key question: What is 

going to constitute this transitional period? I, for one, don’t believe 

that 3 years is quite enough. I don’t know if 6 years is too much. 

It is kind of like Goldilocks and the various porridges. 

So what does the Administration believe is an ample transitional 

period? 

Secretary SNOW. Well, Congressman, I share the sentiments you 

have expressed there. I think a couple of years’ extension would 

help us understand better the situation. Over the weekend I read 

this recent OECD study on terrorism insurance and threats of terrorism in Europe, and it is a very thoughtful study. What they basically recommended was maximizing the role of the private sector, 

using the Government as a backstop, and continuing to evaluate it 

and not, in effect, making it a permanent program. 

So it seems to me a couple of years, if we had it for a couple more 

years, we would be in a position to evaluate and have a better 

sense of where to go from there. But it was not intended, as you 

know, to be a permanent program. It was established as a temporary program. 

Mr. HENSARLING. In your written testimony you also allude to 

the progress the industry has made since the enactment of TRIA 

and its capacity to write terrorism insurance. You didn’t really 

elaborate upon that in your oral testimony. Can you elaborate a little bit more on what improvements we have seen in the market? 

Secretary SNOW. Yes. One, we have seen the surpluses in the industry have gone up quite dramatically. Of course, it is the surpluses that determine how much insurance they will write. Underwriting profits, which were negative in 2001 and 2002, turned positive in 2004. The capital base of these industries has gone up a lot 

because back in 2001, then 2002, the equity markets took a big hit. 

Now the equity markets are much, much stronger. Economic 

growth for the economy has been much, much better. Unemployment rates have come down. 

Then when you look at the industry statistics or metrics themselves, the take-up terrorism rate, which was in the mid-twenties 

in 2002, is now over 50; 54 percent as I recall. 

The share of insurers who were pricing insurance, making it 

available with prices, has more than doubled over that period from 

some roughly 20 percent to the mid-fifties. 

Policyholder costs, that is as a share of premiums, has gone up 

from about 1.2 percent to 1.7 percent, something on that score. But 

the policyholder cost in the high-risk cities has come down, which 

is interesting. 

So overall we see a better insurance picture than we saw back 

then. 

Mr. HENSARLING. I see in your testimony there has been some 

question about the Administration position on the extension. I see 

where you state that you are hoping the extension of the program 

26

would recognize the temporary nature of the program, the rapid expansion of the private market development and the need to significantly reduce taxpayer exposure. In the seconds that I have remaining, I could not agree more, Mr. Secretary. 

I yield back the balance of my time. 

The CHAIRMAN. The gentleman yields back. The gentlewoman 

from New York, Ms. Velazquez. 

Ms. VELAZQUEZ. Thank you, Mr. Chairman. 

Welcome, Mr. Secretary. Mr. Secretary, studies show that small 

businesses, even those located in high-risk cities, are taking up terrorism insurance at lower rates. The Treasury report supports this 

notion that as firm size increases, firms are more likely to have terrorism insurance. Often small businesses cite the high cost of policies as the reason for not purchasing it. 

If small businesses are unable to afford coverage, they may move 

to lower-risk areas, leaving many downtown urban centers devoid 

of the economic vibrancy that they are known for. 

On page 7 of your report, Treasury states: ‘‘Overall our assessment is that the immediate effect of the removal of the TRIA subsidy is likely to be less terrorism insurance written by insurers, 

higher prices, and lower policyholder take-up.’’ 

Clearly, letting TRIA expire will not help small businesses secure 

the insurance they need. If small businesses are unable to secure 

terrorism insurance, particularly those located in high-risk cities 

like New York, what effect might this have on economic development in downtown urban areas? 

Secretary SNOW. Congresswoman, thanks for that good question. 

Small business, of course, is at the center of our economy. We need 

to make sure small businesses continue to thrive. What we are saying is that with the reforms, with the reforms, we think that there 

would be more creative and lower-cost insurance available, because 

the reinsurance industry, which is being crowded out now by the 

Government program, would come into play. 

A lot of small businesses, according to the study, even though it 

has been available under TRIA, have not taken the terrorism insurance, making a judgment I guess that they aren’t at great risk; 

others do. That is a normal sort of market set of choices. 

Ms. VELAZQUEZ. Well, I have a lot of small businesses in New 

York City, especially in my district. They border Chinatown and 

they border the area of the World Trade Center. I have met with 

them. We do a lot of hearings or meetings with them. And that is 

not what they are telling us. They are telling us that is it is the 

cost that is making it impossible for them to get their insurance 

that they need. 

Secretary SNOW. You are saying the cost with TRIA today? 

Ms. VELAZQUEZ. Yes. 

Secretary SNOW. I think we can probably do better as we go forward with the modifications that we are suggesting. 

Ms. VELAZQUEZ. Sir, what will you do, or the Federal Government, to increase the affordability of terrorism insurance for small 

businesses? 

Secretary SNOW. Oh, I would let the market work more. 

Ms. VELAZQUEZ. It is not working now, even with TRIA. 

27

Secretary SNOW. That is the very point I am making. There 

would be more room for the market to work if we had the Government recede some and let the reinsurers and the insurance business play a bigger role here, if we in effect cut back on the Government role. 

Ms. VELAZQUEZ. I also want to follow up on Mr. Frank’s question 

on flood insurance. The Federal Government has frequently 

interceded in insurance markets, offering the Federal Crop Insurance Program and the National Flood Insurance Program, providing deposit insurance and implementing the Price-Anderson Act, 

which then insures against nuclear accidents. These are just a few 

instances. 

Given the Administration’s opposition to TRIA, does the Administration plan to oppose other Federal insurance programs? Explain 

to me why the justification for these programs are different than 

for that of TRIA. 

Secretary SNOW. Well, Congresswoman, as I have been careful to 

try to explain, with these reforms that we are suggesting we will 

make the program stronger, and then want to urge you to move 

forward and adopt them and keep the program in place with these 

reforms. 

Ms. VELAZQUEZ. Thank you. 

The CHAIRMAN. The gentleman from North Carolina, Mr. 

McHenry. 

Mr. MCHENRY. Thank you, Mr. Chairman. 

Mr. Secretary, is it your goal for the Federal Government to be 

out of the insurance business, out of this entirely, and if so, what 

is your sort of game plan for that? 

Secretary SNOW. Go back to the original TRIA. It was intended 

to be a temporary program to serve an important need for a period 

of time. The evidence, as indicated in our report, is pretty clear 

that TRIA has been helpful. We have seen the surpluses rise, we 

have seen coverage rise, we have seen take-up rates rise. That is 

all positive. 

Now we are at the point of asking ourselves can we improve the 

program? Not eliminate it, but improve it. Because it is really important that we get—you weren’t in when Chairman Baker talked 

about this, but get this balance right—maybe you were—between 

the sharing of the risks. 

Mr. MCHENRY. I was. 

Secretary SNOW. The risks between taxpayers and private industry should be balanced. It is our view that giving private industry 

more room to operate, they can share more of the risks, reduce the 

risks on taxpayers, and actually it is our view they will probably 

get a better product over time. We want to keep that process going. 

Mr. MCHENRY. What is your time frame? 

Secretary SNOW. Well, as I said, a couple of years’ extension 

would seem to me to be reasonable. 

Mr. MCHENRY. Why not a simple extension of what we have 

now? 

Secretary SNOW. Because I think we shortchange the taxpayers 

with a simple extension. We shortchange taxpayers and we also, 

frankly, shortchange the capacity of the insurance industry to perform at a higher level. 

28

Mr. MCHENRY. Okay. Now, in terms of in the past, certain States 

have said that you must make available—well, certain States, it is 

said that you have to make available the backstop. Let me rephrase this. 

Under the current TRIA program, there is a requirement that 

companies make available coverage, coupled with a Federal backstop, to help make coverage more affordable. What would the new 

program do in those terms? 

Secretary SNOW. It would, as we are proposing it, those components would remain the same. 

Mr. MCHENRY. The exact same as we have? 

Secretary SNOW. We would cut back some lines, we would reduce 

coverage on some lines, but change deductibles and copays. But 

that sort of model, framework, template, would stay in place. 

Mr. MCHENRY. Have you thought about the ramifications with 

insurance packages, where you have Workman’s Comp, you have 

commercial property insurance, but when you are eliminating lines 

like automotive and general liability, that increases the costs in the 

marketplace by not having that Federal backstop. 

Have you considered the ramifications for how that transition is 

going to occur, the effects it is going to have on the market? 

Secretary SNOW. Yes, that is the subject of the study. We concluded that those additional lines that you mentioned aren’t subject 

to the sort of aggregation risks, like auto insurance, that are really 

not the appropriate subject for TRIA, and that is why we called for 

cutting back coverage on those lines. But we don’t think other than 

that it would have a far-reaching effect. 

Mr. MCHENRY. And this is my final thought or final question. 

With what just happened with the terrorist attacks in London, 

there is a lot of concern about the soft targets, not just on infrastructure being targeted, but on the soft targets. How is this new 

program going to encourage take-up rates when it comes to especially soft targets, that sector? 

Secretary SNOW. Well, I have talked to the people in London. 

Our condolences go out to them, and concern. They have handled 

it well. 

A London-size event, as devastating as it is, is not large relevant 

to the capacity of the industry to handle it. 

Mr. MCHENRY. But in terms of increasing the take-up rates 

when we are talking about soft targets, just generally speaking, 

aside from the events that occurred in London— 

Mr. SNOW. You mean like subways? This is a subject I mentioned 

earlier, a discussion I had this morning with Secretary Chertoff. It 

is clear the terrorists are looking for soft targets. They are looking 

for the things that they think aren’t sufficiently protected or that 

are hard to protect, like subways. And our response has to be to 

toughen up our security processes on those targets. I think that is 

the better way to get at this; it is the only way ultimately to really 

get at it. That is partly intelligence gathering, it is partly surveillance, it is partly more security at the facilities. It is a whole range 

of things. 

The CHAIRMAN. The gentleman’s time has expired. The 

gentlelady from California, Ms. Lee. 

29

Ms. LEE. Thank you, Mr. Secretary, for being here today. I apologize for being late due to another conflicting meeting. I am trying 

to review your testimony very quickly. A couple of questions I have 

with regard to your testimony which I am not sure have been answered in this. 

First of all, clearly we all agree, I think, that the risk of terrorism is very real and we must ensure that coverage is available. 

However, I wanted to get some specific dollar amounts in terms of 

just what the taxpayer subsidies have been since TRIA has been 

in effect. I am not sure if your testimony gives us that dollar 

amount. 

What have the American taxpayers provided? 

Secretary SNOW. Well, to date, fortunately there have been no incidents that are coverable under TRIA, so the direct outlays have 

been, as Ranking Member Frank said, zero; the direct outlays. But, 

of course, there is a potential cost that is there, which constitutes, 

in effect, a subsidy to the industry. 

Ms. LEE. What, though, in terms of the reinsurance, what are 

your projections though? 

Secretary SNOW. I don’t think we have quantified that to any satisfactory degree, to be honest with you. 

Ms. LEE. Just in terms of evaluating legislation, I would like to 

know what we are looking at, what your estimates are. I think taxpayers deserve to know that, should they have to do this, what 

they would be required to pay. 

Secretary SNOW. Well, we can give you the math on that. That 

is pretty straightforward as laid out in the statutory framework 

itself. The Government is on the hook for a sizable amount of 

money over the deductibles and copays that would take you to the 

$100 billion cap. So there is a portion that would be retained by 

the industry and there is a portion that the Government would 

pay, and then there is a recoupment. I will send you an example 

that lays that out. That we know. 

What we don’t know is the year-in/year-out hidden subsidy that 

the program costs. Not to any high degree. 

Ms. LEE. That will be very helpful. Some would suggest looking 

at the riot reinsurance program of the 1970’s. I am not sure if you 

have had a chance to look at this. Some would say this is an example of how we should modify TRIA as we begin to reauthorize it. 

Secretary SNOW. Thank you. I don’t know that we have done 

that, but I will ask the staff to take a look at it. 

Ms. LEE. Thank you very much, Mr. Secretary. Thank you, Mr. 

Chairman. 

The CHAIRMAN. The gentleman from Staten Island. 

Mr. FOSSELLA. How is that for a dramatic introduction? 

Thank you, Mr. Chairman. And thank you, Mr. Secretary, for 

coming. 

Let me just state for the record, as has been said, that TRIA has 

worked. It has been effective in stabilizing and allowing our economy to move forward. There are many people, I know, especially 

in New York City where I am from, of all shapes and sizes, all political views and ideologies, from ‘‘the government has no role’’ to 

‘‘the government should do everything in life,’’ who all agree, I 

30

think, that TRIA has served its purpose. I do think it has to be renewed in some way. 

You mentioned the fact that the take-up rate has almost doubled 

in the last couple of years, and I can appreciate your desire to try 

to stimulate more private sector involvement and minimize the exposure of the Federal Government. But how can you determine 

that take-up rate will at least continue at the current rate, at a 

minimum remain at the status quo, and not be adversely affected 

if the Government does pull out or change the formula or implement some of the reforms as you have suggested? 

Secretary SNOW. Congressman, that issue is dealt with in the 

study. The market has developed well and it is our sense that as 

we give the reinsurance market, which hasn’t developed as well, 

more room to operate—in other words, reduce the subsidy some—

that the private market would play a bigger role. 

It seems to me it is hard to argue with the fact that the subsidy 

crowds out some of the reinsurance that otherwise would be there. 

So it is the conclusion of the Treasury experts who ran the study 

that we would have a larger role for the private sector if we reduced the subsidy somewhat. We are not eliminating it, of course; 

we are just giving the private sector a somewhat larger role. But 

we are not eliminating it in any way in our proposal, the backstop 

or the fundamental structure of TRIA. 

Mr. FOSSELLA. Along the same lines, earlier you said there were 

impediments, or at least you indicated if you implement some of 

the reforms, the policy rate premiums would come down. Just for 

the record, what are those impediments that are in place that prevent the policy rates from coming down right now? 

Secretary SNOW. Well, I am not sure the rates will come down 

if we go forward, because the rates today, of course, reflect the subsidy, and we are proposing to narrow the subsidy. But we don’t 

think there would be any material effect on coverage and rates. 

And over time, I think as we allow the private sector to play a bigger role here, including the financial sector, that we would expect 

to see innovations that would result in better products and better 

pricing and better coverage for the marketplace. 

It is our trust in the markets, fundamentally. 

Mr. FOSSELLA. I appreciate that as well. 

Before I yield back, I think it was said earlier, let us not get ourselves in a position of putting all of us at too much risk, and God 

forbid another attack occurs a year from now or 2 years from now 

and we indicate that maybe we moved too fast in implementing 

some of the reforms. I believe in the market myself, but I see at 

some point in time it is appropriate for the Federal Government to 

step in and Congress to step in to provide that stability to the marketplace that is essential. 

I yield back. Thank you, Mr. Chairman. 

The CHAIRMAN. The gentleman yields back. 

Mr. CAPUANO. Thank you, Mr. Chairman. 

Mr. Secretary, I actually agree with I think virtually every general policy statement you have made today. I totally agree that, if 

possible, in a perfect world the Government should have no role in 

private insurance, and I think that is what I have heard today, and 

that is a great thing. 

31

But, however, like many things I find in Congress, it is really not 

about the general policy goals that we have problems, it is about 

how we get from A to B. And I guess, just for general ideas, do you 

agree, do you believe that, God forbid—and I guess all of today is 

based on the premise that we may some day have another accident. 

If we all agree that we would never have another accident, we 

wouldn’t be here today. So, God forbid, we have another event, a 

horrendous event in America. Do you agree that the United States 

Congress and the current Administration, probably every future 

Administration, is likely to be able or be desirous of considering 

Federal Government involvement either through reinsurance after 

an event just like we did after 9/11? Do you think that is a positive 

and a likely occurrence? 

Secretary SNOW. Congressman, I think we have to continue to be 

focused on the issues of terrorism and use every means in our disposal to deal with it. It starts with the protection; the back end of 

it is in case a terrorist event that we don’t want to see happen does 

happen. And all we are saying here is that, as you consider extension of TRIA, we suggest adding these reforms. 

Mr. CAPUANO. I understand. I don’t want to get into word games 

with you because that is not what I want to do today. I happen to 

think that it was the right thing for this Congress and this Government to be involved in the aftermath of 9/11, and I would argue 

that any time we had another terrorist event we should be considering that. Not that we always want to do it, but that it is a likely 

thing. I think the American people think that it is a likely thing. 

I think that businesses think it is a likely thing and the average 

person thinks it is a likely thing. And my expectation is that, since 

President Bush was so upfront after 9/11 in support of Government 

action, I would assume that he would be similarly situated in, God 

forbid, another situation. 

For me, based on that belief and on the presumption that that 

is your belief and the Administration’s belief, we are really not 

talking about anything here other than how do we get there. And 

TRIA, we all agree, was temporary. And you have discussed, you 

mentioned shortchanging taxpayers. But the only way we shortchange taxpayers is if there is an event. If there is no event, nobody gets shortchanged; nothing changes. 

So, for me, between now and the time we actually come to a conclusion, we have to concern ourselves with two parts. I mean, I 

agree with you and the reason I want to echo the statements made 

earlier, the chairman’s comments earlier about having a bill out, I 

agree. I look forward to working with him on it. And I think there 

is a good chance that we will do it. However, if there isn’t, I also 

think we have to be honest about it. And if—the worst-case scenario is nothing. Under the situation of nothing, there is no backstop for anybody. 

The second worst-case scenario, I think I agree with you on many 

situations, is a simple extension of TRIA. However, I also, with 

some of the things I have heard today, make me concerned about 

whether we can actually get to an extension or a modified extension of TRIA. Number one is the things that Mr. Kanjorski mentioned; namely, the games that might be played that have nothing 

to do with insurance on so-called tort reform and other things. But 

32

I also want to comment very specifically on your proposal on the 

$500 million. 

Now, I fully admit that when we did triggers, as far as I was concerned most of the numbers were just guesses. They weren’t based 

on anything. Was your $500 million based on anything, or was it 

just a more educated, updated guess? 

Secretary SNOW. Well, this isn’t science, of course. There is no 

logarithm you can turn to to get the answer to that question. But 

it is more than a hunch or a guess. We look at the $500 million 

as a threshold that is high enough that it will reduce unnecessary 

Government intrusion into the marketplace and create the opportunity for more private solutions while maintaining broad coverage. 

And in doing this, arriving at this number, we had lots of consultations, Congressman, with members of the industry. This reflects 

those conversations and consultations with them and looking at 

their own retention rates—and I won’t go into all the details—their 

own statements of what they think the market can bear. 

Mr. CAPUANO. Mr. Secretary, again, I have no specific argument with the $500 million number because, again, to me it is just at 

the moment something pulled out of the air and I would like to 

hear more about it. But the reason I ask is because now and the 

time we have to renew this bill we have to come up with a real 

number. If it is $500 million, so be it. But for the sake of discussion, I don’t think anybody here would argue that the London incident was an act of terrorism. I don’t think anybody would argue 

that the Madrid train bombing was an act of terrorism, that Oklahoma City was an act of terrorism, and that Pan Am 103 was an 

act of terrorism. None of those would exceed $500 million. None of 

them. Not even all together would they exceed $500 million. 

Now, and the reason I point this out is because, again, a number 

pulled out of the air is very good, and if it statistically backed up, 

fine. And $500 million is not some number. But I would argue that 

the question that really should arise is what is it that we really 

think is a threshold number, a trigger number for the type of event 

that we want to get. And I personally, at least sitting here without 

any further additional information, would argue that any of the 

items we just—that I just mentioned and probably many more 

would certainly rise to the occasion of me as a Member of Congress 

wanting to consider whether we should take action and therefore 

should be below a trigger that we might put into TRIA. Again, I 

understand. 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. CAPUANO. But I would just point that out as a point of information as we go through the discussion. 

Secretary SNOW. While I acknowledge this is not a scientifically 

verifiable number, it is a number that reflects the best thinking of 

the Treasury experts who arrived at it, and with which I concurred 

after consultations though, Congressman, with a lot of people in 

the industry and looking at their own retention rates. And I think 

it is a reasonable number and we can debate it, we can discuss it. 

The CHAIRMAN. The gentleman’s time has expired. The Chair 

would indicate that the Secretary does have to leave in 25 minutes, 

so we will try to move through the questioning as quickly as possible. 

33

The gentleman from New York. 

Mr. CROWLEY. Thank you, Mr. Chairman. I will try to be as 

quick as possible. 

Let me thank Mr. Capuano, Mr. Israel, Mr. Frank, and Mr. Kanjorski for helping to move at least on this side of the aisle some 

of the issues. And I just want to clarify for the record, the phone 

has been ringing off the hook in my office and I am from New York 

City and it is representative of both sides of the aisle, so to speak. 

And I do recognize the interest here that this is not a red or a blue 

issue, this is a red, white, and blue issue and one that needs to be 

addressed. 

It just harkens me back to an old adage of, albeit a nuance to 

it, of: If it ain’t broke, fix it. That is kind of what I am getting from 

you, Mr. Secretary. On one hand you are saying what is taking 

place with TRIA was something that was good and it is a good 

thing that happened, yet we have to fix it. And I am not so sure 

that I just sort of come at it from that avenue. I look at it from 

the point that it has been effective, it has worked, it has been able 

to enable tenants with cities like mine in New York to continue to 

operate—and I am talking about corporate America—to continue to 

operate and therefore employing a lot of my constituencies, therefore employing a lot of the taxpayers that work in those industries 

and ancillary industries. 

The whole discussion before about the exposures of taxpayers or 

shortchanging taxpayers, when I point out that zero taxpayer dollars have actually been used from the, God forbid, an account after 

a terrorist attack, I mean, the whole thing here is about we hope 

that this never happens again, albeit we see what happened in 

London. We know that they have their intentions on doing something again, and unfortunately, I don’t think we can wait. I don’t 

think the terrorists are going to say, well, let us let them figure 

out how to deal with the long-term exposure with the threat of terrorism. They are not going to give us that luxury. Therefore, we 

have had this last 2-year period, and what we are looking for is an 

extension so that the industry itself can come to some conclusion 

in conjunction with Treasury, in conjunction with the committee in 

both Houses to come up with an overall final solution to the problem. 

I will just ask quickly, what is your time limit? What do you perceive as being the time line that is necessary? I know you mentioned a couple of years. But specifically what do you see laid out 

in that period? And group life. Again, I think what Mr. Frank 

talked about before, we are going to cover property but not lives 

themselves. We know that the Victims Compensation Board did an 

admirable job. Is that how we are going to move forward in the future if, God forbid, there was another terrorist attack? 

And before you answer that, Mr. Chairman, I would like to yield 

the balance of my time to the young lady from Chicago, Ms. Bean. 

Ms. BEAN. Thank you, Congressman Crowley. Thank you, Mr. 

Chairman. Thank you, Mr. Treasury Secretary, for being here 

today. I just wanted to follow up on a point expressed by my colleagues Maloney and Capuano regarding the increase to $500 million as the trigger. I don’t think you got an opportunity to necessarily respond to Congressman Maloney earlier. And certainly 

34

Congressman Capuano talked about several other incidents that 

would not have been covered. At $32 million, even 9/11 wouldn’t be 

covered. How can you say to areas like New York or Chicago—I 

represent a suburban district of Chicago - that you are really providing a viable backstop? 

Secretary SNOW. You heard me describe how the $500 million 

came about, consultations with industry representatives, looking at 

current retention levels that they are able to put in place. The recognition that we have had over this last 3 years, much higher takeup rates have been observed. Even as the program’s deductibles 

have gone up as required in the statute—you recall the framework 

or the statute is every year the deductible goes up. Even in the face 

of that we have seen these sorts of numbers I recited earlier indicating that coverage in take-up rates have broadened. So what we 

are seeing here is the insurance industry maturing, developing, 

probably doing better modeling, better assessments, and putting 

itself because of its stronger financial position in a better position 

to offer the very coverage that we want to see them offer. 

Ms. BEAN. Thank you very much. I yield back the balance of my 

time. 

The CHAIRMAN. The gentlelady yields back. The gentleman from 

New York, Mr. Israel. 

Mr. ISRAEL. Thank you, Mr. Chairman. Mr. Secretary, thank you 

for your patience. Mr. Secretary, one of the things that we do very 

well around here is to snatch defeat from the jaws of victory. We 

had a victory on TRIA in the last Congress. There has been a lot 

of talk today about working out some differences, reaching consensus, developing a bipartisan approach with the Administration. 

Been there, done that. It happened in the last Congress. We were 

on the suspension calendar. We were a couple minutes away from 

a vote on a product of consensus from this committee, and then it 

got pulled at the last minute. Mr. Capuano, Mr. Kanjorski and I 

have introduced a bill that is very similar to the bipartisan product 

of consensus that was approved in this committee in the last Congress, and I really am hopeful that we can work together with the 

Administration and get something done that makes sense in this 

Congress. 

Let me just ask you a question about process, the process by 

which you formulated the report. My district is about 50 miles from 

Ground Zero, and I hear regularly from the real estate community, 

from the insurance community, from the financial services community that they are exceedingly nervous about what will happen not 

if TRIA is not extended, but what is happening right now, what the 

trends are right now. Exclusion clauses are already being written 

into insurance contracts. Premiums are already becoming 

unaffordable for proposed developments next year and the years 

after. Instability has already set in against the uncertainty of a 

Federal role. It seems to me that the reality that I am hearing 

from the marketplace in my congressional district and near my 

congressional district doesn’t necessarily square with the data that 

is reflected in your report. 

One of the questions I have with respect to that data and that 

process is, at what point did you stop taking economic data from 

the various experts? In other words, and specifically, was second 

35

quarter data included and reflected in the report that was submitted to Congress? 

Secretary SNOW. The data I am advised ran through February of 

2005. So it might not reflect some of these sentiments that I assume reflect uncertainty about the future of the program. Congressman, if you are suggesting that uncertainty is the enemy of 

well functioning markets, I agree with you. Business people need 

to have a sense of certainty in order to make market decisions. So, 

you know, I have said it over and over again, I hope we can move 

forward with these reforms to the program that we started with 

the opening comment by the Chairman on. 

Mr. ISRAEL. Just so I make sure I am clear. Any submissions of 

data from various experts after February that may have reflected 

a growing uncertainty or more up-to-date trends were not able to 

be included— 

Secretary SNOW. We did not— 

Mr. ISRAEL. Fair enough. 

One final point if I may, Mr. Chairman. You know, we have 

heard a lot of talk about taxpayer liability and the cost of TRIA to 

the taxpayer. Mr. Secretary, I appreciate your candor and honesty 

as a matter of common sense that there has been no cost to the 

taxpayer of TRIA. There has been some talk about how the Federal 

Government doesn’t have an answer to every program; there is not 

a Federal program that can help every problem. I agree with that 

entirely. 

I would say that in addition to national flood insurance, you 

know, we have a wonderful crop subsidy program. It is costing the 

Department of Treasury $19 billion this year to subsidize the agricultural industry not to grow crops. Now, I don’t know how you can 

defend subsidies from the Federal Government in order to keep 

crop prices high but say there is no role for the Federal Treasury 

to play in not helping to create a backstop for insurance to keep 

premiums and consumer costs low. 

Thank you, Mr. Chairman. I yield back the balance of my time. 

Mr. CROWLEY. Would the gentleman yield for just a moment? 

Mr. ISRAEL. I yield to the gentleman. 

Mr. CROWLEY. Mr. Chairman, if I could just ask, I am also hearing from industry about the timing of this; that if policies are not 

issued—or the sense that there is going to be a TRIA next year, 

that policies be issued in October of this year and not in December 

of this year. Is that something that the Secretary is aware of as 

well in terms of the timing of getting legislation passed? 

Secretary SNOW. I am aware, having gone through the exercise 

here a year ago, that timeliness with respect to where this is going 

to go is very important to the industry, yes. 

The CHAIRMAN. The gentleman’s time has expired. The gentleman from Kentucky. 

Mr. DAVIS OF KENTUCKY. Thank you, Mr. Chairman. 

Mr. Secretary, I would like to follow on your remarks just now 

on the comments of a sense of certainty, which is one aspect I think 

that is important to cover. Certainly in the September 11th attacks, one of the clearly articulated but I think culturally misunderstood aspects of the attacks were a goal to disrupt our economy, damage the financial markets as well as making a profound 

36

visual statement and inflicting pain on our Nation. TRIA concerns 

me very much in the sense of not opening a window of additional 

vulnerability, knowing that there is a backstop of some kind of 

place to instill confidence in the markets. 

I have a couple of questions along these lines. Are lenders now 

requiring that developers have terrorism coverage on new properties like large shopping malls and office buildings? 

Secretary SNOW. Do they take an interest in whether they have 

them or not? 

Mr. DAVIS OF KENTUCKY. I know many do take an interest. But 

as a— 

Secretary SNOW. Yes. 

Mr. DAVIS OF KENTUCKY. Basis of requirement for lending. 

Secretary SNOW. In some cases, yes. 

Mr. Davis of KENTUCKY. If that is the case, and I guess my question would be is if TRIA is not extended in some proactive form, 

what would be the consequences for these lenders and developers 

in what might be targeted or in—that is a bad choice of words—

in, say, high-value structures? 

Secretary SNOW. It would very much depend on the performance 

of the industry and the absence of TRIA, of course, and how much 

capacity it would have. What we are calling for is of course reforming the system, revamping it, making it more effective, and allowing the private sector to play a bigger role, and I think if we do 

what we are suggesting that we would see the private sector respond and we would get higher take-up rates even as the 

deductibles in the retentions go up. 

Mr. DAVIS OF KENTUCKY. Do you feel, just as a final point, that 

were TRIA not extended do you think that lenders may determine 

that the risks are too great, that they would call loans early if insurers are unable to extend coverage? 

Secretary SNOW. Congressman, I have not had a chance to assess 

that issue as such. It would be hard for me to be getting inside the 

minds of the lenders to give you an informed answer on that. 

Mr. DAVIS OF KENTUCKY. Perhaps if one of your staff has a 

chance, I would be very appreciative if they might share a perspective on that question. 

Secretary SNOW. Good. Thank you. 

Mr. DAVIS OF KENTUCKY. I yield back, Mr. Chairman. 

The CHAIRMAN. The gentleman yields back. The gentleman from 

North Carolina. 

Mr. FRANK. Mr. Secretary, we have three more members—if you 

could promise us an additional 5 minutes, we have some of our 

most conscientious members who have been here throughout this. 

So I would ask for 5 minutes indulgence. 

Secretary SNOW. Thank you. 

The CHAIRMAN. I thank the Secretary. The gentleman from 

North Carolina. 

Mr. MILLER OF NORTH CAROLINA. Thank you, Mr. Chairman. 

Secretary Snow, I support the extension of TRIA. I cosponsored 

the legislation in the last Congress and voted for it in this committee, and I have cosponsored the legislation in this Congress. But 

I have a concern about TRIA that no one really has expressed 

today, and that is the effect that it has on the market encourageVerDate 0ct 09 2002 10:34 Sep 18, 2006 Jkt 029460 PO 00000 Frm 00040 Fmt 6633 Sfmt 6633 F:\DOCS\29460.TXT HFIN PsN: TERRIE
37

ment for private sector preparedness. It appears to me that heavily 

subsidized reinsurance tends to undermine, to weaken the private 

sector encouragement for preparedness. And obviously some, a 

great deal of what we have to do to prepare for terrorist attacks 

is on the Government side. It is intelligence, it is law enforcement, 

but also some of it, a lot of it has to be on the private sector side 

as well. 

The 9/11 Commission report said that 85 percent of our critical 

infrastructure was in the private sector. It said that witness after 

witness told us that, despite 9/11, the private sector remains largely unprepared for a terrorist attack and concluded that private sector preparedness is not a luxury, it is a cost of doing business in 

the post-9/11 world. It is ignored at a tremendous potential cost of 

lives, money, and national security. 

Mr. Secretary, I was intrigued to read an article in the Boston 

Globe earlier this year, February 22, that said that the Department 

of Homeland Security was looking at using insurance or encouraging insurers to push private sector preparedness, and said the 

basic idea would be to have the Government or each industry develop a minimum set of security best practices, and then insurers 

would audit companies for compliance with those standards with 

the power to reduce premiums for those who comply. 

That seems to be contrary, to be inconsistent with TRIA as it is 

now written, but it also is not anything that is included in the Department’s, your Department’s recommendations. What has become 

of those recommendations? Do you know, Mr. Secretary? 

I was pleased to hear that you were speaking to Secretary 

Chertoff this morning. I hope you all talk all the time. 

Secretary SNOW. Congressman, my testimony and the report I 

think both stress that one reason for the reforms or revamping 

changes that we are suggesting is to give the private sector more 

incentive to do mitigation. I think there would be mitigation, I 

think there would be adaptations that we don’t see today because 

TRIA is there with the reinsurance. So absolutely I think the incentives for mitigation behaviors would be much stronger in the 

sort of environment we are suggesting be created. 

Mr. MILLER OF NORTH CAROLINA. Was the only thing that you 

proposed to do to kind of ratchet back the extent of reinsurance, 

or are there other specific—as this article seems to suggest, that 

the Homeland Security Department is considering other specific 

measures to encourage— 

Secretary SNOW. The Homeland Security Department, of course, 

is dealing with a lot of that in their consultations with individual 

industries. My old industry, the transportation, railroads and ocean 

shipper companies and barge lines and truck lines, which is my 

business, they are working with them to do just that. 

Mr. MILLER OF NORTH CAROLINA. Right. I am happy for that. 

But what are they doing other than encouraging it? I want them 

to encourage, but are they— 

Secretary SNOW. Well, there are consultations. They are pointing 

out risks. 

Mr. MILLER OF NORTH CAROLINA. Great. 

Secretary SNOW. They are pointing out— 

38

Mr. MILLER OF NORTH CAROLINA. There is not any regulatory requirement? 

Secretary SNOW. Not that I am aware of. But in my days, I remember Tom Ridge calling me and saying, ‘‘John, you have got to 

worry about this and worry about that.’’ 

Mr. MILLER OF NORTH CAROLINA. And is there any effort that is 

going to come from this Administration to try to encourage the insurance industry to differentiate in premiums based upon the level 

of preparedness? 

Secretary SNOW. Well, the insurance industry itself has a huge 

incentive to do that if we let the marketplace play a bigger role. 

Because that is what insurance does. I mean, if you have got a 

brick house, your fire insurance policy is lower than if you have got 

a tinder wood house. 

Mr. MILLER OF NORTH CAROLINA. Your testimony today with respect to the liability system—and I read that the way that Mr. 

Frank did, that the phrase ‘‘allow unscrupulous trial lawyers to 

profit from a terrorist attack’’ basically means you are going to 

ratchet back the civil liability system. I am sure as both the holder 

of a law degree and a Ph.D. In economics, you are aware of the 

wealth of economic theory mostly by conservative economists like 

Milton Friedman and Richard Posner that the civil liability system 

is a market mechanism to push preparedness. Are we not, if we 

protect ill-prepared, slothful private sector entities from the liability for the losses that come from their lack of preparedness, that 

we are going to undermine the market encouragement for preparedness? 

The CHAIRMAN. The gentleman’s time has expired. The Secretary 

may respond. 

Secretary SNOW. That is not our intention. 

The CHAIRMAN. The gentleman from Georgia, Mr. Scott. 

Mr. SCOTT. Thank you very much. Thank you, Mr. Secretary. It 

is good to have you here. I represent the Atlanta, Georgia, metro 

area which is of course like so many other major cities in this country, but certainly its uniqueness being the center for headquarters 

for the Centers for Disease Control, the world’s busiest airport, we 

have got real brand name companies like CNN and Coca Cola companies which terrorists—have been known to be on terrorists’ targets. So we are very much concerned about this issue with TRIA. 

I think the issue that concerns me is the phase of your testimony 

dealing with opening up the private markets, the markets would 

be more attainable in saving the taxpayers money and so forth. But 

I think our primary concern here is to understand the nature of our 

situation in this war on terror, homeland security being a Homeland Security, national security issue. So there is a primary responsibility for the Federal Government to make sure that our safety 

and security is at stake. 

For the very nature of your moves and the tools that you are advocating in the reforms concern me. While you are saying we will, 

I think your conclusion is that we will move ahead with TRIA, but 

when you mention that you want to increase deductibles, you want 

to increase copayments, you want to do away with liability, you 

want to kick the auto insurance out, you don’t want to include 

group insurance, and then you want to raise the trigger from $25 

39

million to $500 million, that is like shooting holes in a ship and 

then putting it on out to sea. I mean, there is enough there to sink 

it before you even move. 

In good times, when you use those figures, and the insurance 

company, insurance industries use those tools, deductibility, the copayments, but based upon some level of certainty, the two major 

issues we are faced with, with this new entity we are faced with 

in terror is the mass, the huge uncertainty, number one, of the 

events, and, number two, the hugeness of the cost. We are talking 

about billions of dollars. So I am concerned that, with your tools 

that you are using in terms of encouraging the free market to come 

in place, given the nature of our problem. I don’t believe, I don’t 

agree with you and maybe you can share this with me, that our 

insurance industry has the capacity to even deal with a problem of 

this magnitude. And so I am concerned that we move with caution 

as we revamp TRIA and that your remedies might be too drastic 

and could have a negative impact. 

Secretary SNOW. Congressman, thank you for those observations. 

The insurance industry of course, as you know, writes policies 

based on the surplus that they have relative to the size of the risk 

that they are undertaking. Our study was careful to look at that 

critical set of relationships and concluded, as you know from the 

study, that insurance provision beyond some level was beyond the 

capacity of the individual private insurer. So we are agreeing with 

you. 

What we are proposing here is take TRIA, use that framework, 

but revamp it some. And I don’t think we are revamping it in a 

way that does damage to the ability—in fact, quite the contrary, we 

are revamping it in a way that encourages the ability of the marketplace to bear more of the risks. And as the implicit subsidy—

there is no payout of any subsidy, but as the implicit subsidy gets 

reduced, it is going to expand the role for the private sector. And 

I think that even as the copays go up and the deductibles go up, 

we will see the take-up rates continue to rise because that is precisely what we have observed in the last 2 years as under TRIA 

those deductible levels have gone up. 

But as I said earlier in response to questions with Congressman 

Frank, I agree with you, this isn’t theology, this is a matter of trying to find a reasonable set of answers to how these risks should 

be shared between private sector and taxpayers. 

Mr. SCOTT. Why wouldn’t we adjust it and revamp it going forward based upon the most obvious need that is coming to us? For 

example, we know now that one of the— 

The CHAIRMAN. The gentleman’s time has expired. You may finish up your question. 

Mr. SCOTT. If I could finish my point, is that this war on terror, 

the types of attacks are changing as we speak. The one thing that 

we learned about London is evolving is that these were not folks 

coming in or foreigners, they were citizens who were living there, 

they were young people who committed this. Loss of life is paramount in terms of infrastructure. Given that new phenomenon, 

why wouldn’t we want to include group life insurance, for example? 

Why wouldn’t we want to include them? 

40

Secretary SNOW. Well, this again is a matter that Mr. Frank has 

raised with me. You will recall, the original TRIA statute passed 

in November of 2002, directed Treasury to look at group life and 

consider whether it should be included, to do a study and conclude. 

And you gave us two criteria. Basically, the two criteria were availability of insurance and availability of reinsurance. We found that 

there was an insufficient availability of reinsurance, but we found 

that insurance itself was generally and widely available. So we 

didn’t meet the statutory test and therefore we did not feel that 

group life should be included. And we are at that same position. 

The CHAIRMAN. The gentleman’s time has expired. The gentleman from Alabama, the cleanup hitter for today’s activities. 

Mr. DAVIS OF ALABAMA. Thank you, Mr. Chairman. To be as respectful, Mr. Secretary, of your time as possible, I am going to ask 

you three questions and then ask you to respond to them and try 

to move as quickly as we can so you can go home or go to your next 

meeting. 

The first question I suppose relates to the whole premise behind 

the report from Treasury. The whole premise is that the market is 

slowly engaging in a series of correctives over the last several years 

and that you are confident that these correctives will continue 

without an extension of TRIA in its current form. My first question 

would be a fairly basic one. How much of the market’s readjustment is itself linked to an expectation that TRIA will be renewed 

in its current form? That would seem to be a reasonable possibility 

to me. And a lot of the readjustment that is occurring is against 

a backdrop of Congress doing something that you seem to oppose 

is question one. 

Question number two, this is a very real concern that I have 

about the event limit being raised to $500 million. There is every 

reason to think, unfortunately, that the strategy of al Qaeda or 

whatever passes for al Qaeda now will be to shift toward suicide 

attacks on soft targets, and that al Qaeda may very well have in 

its capacity, in its mindset an ability to start doing the kind of pinprick suicide attacks that are common in the Middle East, that 

were last week in London, and that these kinds of things could be 

done 4 or 5 times a year if we are unlucky. If we were to raise the 

event coverage to $500 million, given that a London scale attack, 

even though New York or Washington would fall way short of that, 

and any single limited suicide type bombing would fall well short 

of that, what about the possibility that we would enter this very 

uncertain environment if we raise the level to $500 million where 

there could be repeated attacks in the United States, none of them 

anywhere near the Government’s backdrop but yet rising uncertainty in the market because of this new rhythm of attacks? That 

strikes me as a very real worry. 

And finally, Mr. Secretary, the third point. If I understand your 

position correctly, you are not one of the theologists on this issue 

who believe that the Government just shouldn’t be involved as a 

backstop. You reject that premise. You are for an extension provided event coverage is expanded. I am concerned given that stance 

about some of the language in the report that has been issued. One 

of the sentences in your report states, ‘‘We do not believe that the 

41

elimination of the Federal terrorism risk reinsurance subsidy is 

likely to have a discernible macroeconomic impact or effect.’’ 

There are other sentences to the effect that expiration of TRIA 

will still lead to a continued instance of the market developing additional terrorism insurance capacity. 

I am concerned, and I think you might want to be concerned, too, 

about some people taking some of the broad conclusions in this report and using it as an argument against any TRIA extension. The 

majority leader, frankly, in a talk that he gave several months ago 

questioned whether or not the Government should inject itself into 

the market in this manner and suggested that you could not have 

any extension of TRIA without doing real violence to the market. 

So given the fact that you favor an extension of TRIA, are you 

not concerned that some of the language in this report could very 

well be used by someone like Mr. DeLay who doesn’t agree with 

your opinion? Those are my three questions. 

Secretary SNOW. I will leave it to Mr. DeLay to figure out how 

to use our report, and I will sit down with him and tell him what 

we think it says. 

On your question about—and I think it is a good question, it is 

an important question about continuing series of small-scale attacks. I am just back from Europe, and that is a very real concern 

that is very much on the mind of European authorities. Under our 

proposal, the backstop would stay in place because it is an aggregate loss of $500 million. So it would cover a series of small attacks—five attacks at $100 million would aggregate to the trigger, 

if all were related. 

Mr. DAVIS OF ALABAMA. But September 11th with 3,000 dead, and there was about $32 million. You would still be way short if 

you had a series of pinpricks. 

Secretary SNOW. Billion you mean? That was $33 billion. 

Mr. DAVIS OF ALABAMA. Right. 

Secretary SNOW. So it would be way over the number here. You know, the $500 million, we can debate the $500 million. As 

I have said over and over, this is a best judgment. Sometimes all 

you can do is render a best judgment because there is nothing else 

to return to. 

Mr. DAVIS OF ALABAMA. What about the first question? I don’t 

want you to miss the first question. 

Secretary SNOW. The first question, which had to do with has the 

take-up rates been influenced by the fact that there is an expectation of TRIA being, as I got it right, being extended. Maybe to some 

extent, yeah. I think there is a sense in the marketplace that TRIA 

will be extended. I think that is something that we would acknowledge. And to save time, I think there is a case to be made, a good 

case for the sorts of changes that I have called for. 

The CHAIRMAN. The gentleman’s time has expired. 

Mr. FRANK. Mr. Secretary, briefly, and I really appreciate your 

time, just two points. One, when we talk about what happens if we 

do or don’t and whether or not—but this is one case where I think 

we need to do a dynamic model and not just a static one. That is, 

again, my conversations have been to a great extent with some of 

the end users. And it is not just a case of, well, if a given amount 

of construction goes forward, will there or won’t there be insurance. 

42

What I am concerned about is that the volume will go down, that 

the insurers will be out of it. 

Secondly, I just want to make a philosophical point that is kind 

of important. And it is a philosophical point that justifies I think 

a continuing Government role. With regard to insurance—Mr. Miller’s question raised this—we do want to put some substantial part 

of the burden on the insured so that the insured can take steps to 

avoid the problem. It is an incentive to do better. Terrorism for us 

today is a largely external threat against the United States based 

on people who dislike us, who hate us, who unfairly want to victimize us. To the extent that we put the entire burden of insuring 

against terrorism ultimately on those who would be the victims of 

it, I think that is philosophically not justified. This is not a case 

where people are victims because of their own misdeeds. This is a 

case where a certain number of Americans because of where they 

are and what they do may be bearing the brunt of attacks based 

on anti-Americanism in general. To that extent I think there is a 

philosophical justification for socializing the risk and to some extent through taxpayers; that is, people in the big cities, people who 

are particularly likely to be targets I think are entitled to some 

burden sharing because that is where it comes from. 

The CHAIRMAN. The Chair wishes to thank the Secretary once 

again for his valuable time and sharing it with us. It was a most 

helpful hearing, and the Chair wants to continue to work with the 

Secretary and his very able folks at Treasury to craft an answer 

to this situation. 

The committee is adjourned. 

[Whereupon, at 4:40 p.m., the committee was adjourned.] 

(43)

A P P E N D I X

July 13, 2005

44


29460.001
45


29460.002
46


29460.003
47


29460.004
48


29460.005
49


29460.006
50


29460.007
51


29460.008
52


29460.009
53


29460.010
54


29460.011
55


29460.012
56


29460.013
57


29460.014