[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
TERRORISM THREATS AND
THE INSURANCE MARKET
=======================================================================
JOINT HEARING
BEFORE THE
SUBCOMMITTEE ON
OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
AND THE
SUBCOMMITTEE ON
INTELLIGENCE, INFORMATION SHARING,
AND TERRORISM RISK ASSESSMENT
OF THE
COMMITTEE ON HOMELAND SECURITY
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
JULY 25, 2006
__________
Printed for the use of the Committee on Financial Services and the
Committee on Homeland Security
Committee on Financial Services
Serial No. 109-111
Committee on Homeland Security
Serial No. 109-93
U.S. GOVERNMENT PRINTING OFFICE
31-540 PDF WASHINGTON : 2007
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HOUSE COMMITTEE ON FINANCIAL SERVICES
MICHAEL G. OXLEY, Ohio, Chairman
JAMES A. LEACH, Iowa BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio MAXINE WATERS, California
SPENCER BACHUS, Alabama CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair DARLENE HOOLEY, Oregon
RON PAUL, Texas JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio BRAD SHERMAN, California
JIM RYUN, Kansas GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio BARBARA LEE, California
DONALD A. MANZULLO, Illinois DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North MICHAEL E. CAPUANO, Massachusetts
Carolina HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut JOSEPH CROWLEY, New York
VITO FOSSELLA, New York WM. LACY CLAY, Missouri
GARY G. MILLER, California STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota JOE BACA, California
TOM FEENEY, Florida JIM MATHESON, Utah
JEB HENSARLING, Texas STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida AL GREEN, Texas
RICK RENZI, Arizona EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas GWEN MOORE, Wisconsin,
TOM PRICE, Georgia
MICHAEL G. FITZPATRICK, BERNARD SANDERS, Vermont
Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California
Robert U. Foster, III, Staff Director
Subcommittee on Oversight and Investigations
SUE W. KELLY, New York, Chair
RON PAUL, Texas, Vice Chairman LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California DENNIS MOORE, Kansas
STEVEN C. LaTOURETTE, Ohio CAROLYN B. MALONEY, New York
MARK R. KENNEDY, Minnesota STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina EMANUEL CLEAVER, Missouri
TOM PRICE, Georgia DAVID SCOTT, Georgia
MICHAEL G. FITZPATRICK, DEBBIE WASSERMAN SCHULTZ, Florida
Pennsylvania GWEN MOORE, Wisconsin
GEOFF DAVIS, Kentucky BARNEY FRANK, Massachusetts
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio
?
COMMITTEE ON HOMELAND SECURITY
Peter T. King, New York, Chairman
Don Young, Alaska Bennie G. Thompson, Mississippi
Lamar S. Smith, Texas Loretta Sanchez, California
Curt Weldon, Pennsylvania Edward J. Markey, Massachusetts
Christopher Shays, Connecticut Norman D. Dicks, Washington
John Linder, Georgia Jane Harman, California
Mark E. Souder, Indiana Peter A. DeFazio, Oregon
Tom Davis, Virginia Nita M. Lowey, New York
Daniel E. Lungren, California Eleanor Holmes Norton, District of
Jim Gibbons, Nevada Columbia
Rob Simmons, Connecticut Zoe Lofgren, California
Mike Rogers, Alabama Sheila Jackson-Lee, Texas
Stevan Pearce, New Mexico Bill Pascrell, Jr., New Jersey
Katherine Harris, Florida Donna M. Christensen, U.S. Virgin
Bobby Jindal, Louisiana Islands
Dave G. Reichert, Washington Bob Etheridge, North Carolina
Michael T. McCaul, Texas James R. Langevin, Rhode Island
Charlie Dent, Pennsylvania Kendrick B. Meek, Florida
Ginny Brown-Waite, Florida
______
SUBCOMMITTEE ON INTELLIGENCE, INFORMATION SHARING, AND TERRORISM RISK
ASSESSMENT
Rob Simmons, Connecticut, Chairman
Curt Weldon, Pennsylvania Zoe Lofgren, California
Mark E. Souder, Indiana Loretta Sanchez, California
Daniel E. Lungren, California Jane Harman, California
Jim Gibbons, Nevada Nita M. Lowey, New York
Stevan Pearce, New Mexico Sheila Jackson-Lee, Texas
Bobby Jindal, Louisiana James R. Langevin, Rhode Island
Charlie Dent, Pennsylvania Kendrick B. Meek, Florida
Ginny Brown-Waite, Florida Bennie G. Thompson, Mississippi
Peter T. King, New York (Ex (Ex Officio)
Officio)
C O N T E N T S
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Page
Hearing held on:
July 25, 2006................................................ 1
Appendix:
July 25, 2006................................................ 29
WITNESSES
Tuesday, July 25, 2006
DeBoer, Jeffrey D., President and CEO, The Real Estate Roundtable 13
Fleming, Terry, Director of External Affairs, Risk and Insurance
Management Society............................................. 9
Lewis, Christopher M., Vice President, Alternative Market
Solutions, P&C Capital Management, The Hartford Financial
Services Group, Inc............................................ 14
Ulrich, Peter, Senior Vice President, Model Management, Risk
Management Solutions, Inc...................................... 11
APPENDIX
Prepared statements:
DeBoer, Jeffrey D............................................ 30
Fleming, Terry............................................... 48
Lewis, Christopher M......................................... 66
Ulrich, Peter................................................ 70
Additional Material Submitted for the Record
Kelly, Hon. Sue W.:
Statement of the American Insurance Association.............. 80
Statement of the Independent Insurance Agents & Brokers of
America.................................................... 88
Statement of the RAND Corporation............................ 97
Dent, Hon. Charlie:
Responses to questions submitted to Peter Ulrich............. 104
TERRORISM THREATS AND
THE INSURANCE MARKET
----------
Tuesday, July 25, 2006
U.S. House of Representatives,
Subcommittee on Oversight
and Investigations,
Committee on Financial Services,
and Subcommittee on Intelligence,
Information Sharing, and Terrorism
Risk Assessment,
Committee on Homeland Security,
Washington, D.C.
The subcommittees met, pursuant to notice, at 10:00 a.m.,
in room 2128, Rayburn House Office Building, Hon. Sue Kelly
[chairwoman of the Subcommittee on Oversight and
Investigations] presiding.
Present: Representatives Kelly, Royce, Kennedy, Garrett,
Dent, Simmons, Gutierrez, Moore of Kansas, Maloney, Cleaver,
Scott, Frank, Lofgren, Lowey, and Thompson.
Also present: Representatives Israel and Crowley.
Chairwoman Kelly. This hearing will come to order. Without
objection, all members' opening statements will be made a part
of the record.
Today, this joint hearing of the Subcommittee on Oversight
and Investigations and the Subcommittee on Intelligence,
Information Sharing, and Terrorism Risk Assessment is going to
examine terrorism threats and the insurance market.
We are fast approaching the 5th anniversary of the
September 11, 2001, attacks on our country. That series of
attacks on New York and Washington, D.C., cost this country
more than $60 billion in losses. Hundreds of billions more was
lost in the economic activity from the fear and uncertainty
unleashed by these acts of terror. In response to that attack,
Congress passed the Terrorism Risk Insurance Act (TRIA) to
ensure the supply of insurance against terrorism in areas where
that supply had been destroyed by the attacks.
Last December, Congress authorized TRIA for 2 additional
years while a permanent solution to the problem of terrorism
insurance supply was developed by insurance providers,
consumers, and government stakeholders. Insurance supply has
been a focus of these efforts, but insurance demand created the
need. Too often, the debate on terrorism insurance focuses on
supply side questions and forgets the needs that drove us to
this point.
In the 5 years since the September 11th attacks, efforts to
perpetrate another large-scale terrorist activity within the
United States have not succeeded, but the threat remains. The
U.S. Government and the private sector must operate based on a
certainty of a terrorist attack in the near to medium term. We
do not know what form the next attack will take but we have
every reason to believe our enemies are seeking to inflict mass
casualties, mass economic attacks, and multiple targets to
maximize damage and weaken the first response capacities.
The terrorist risk, while unknown, is not outside the scope
of reason, though through threat assessment and correlation
with previous attacks, the size and scope of future attacks can
be imagined. Risk can also be measured both geographically and
countrywide. Countries and companies both can measure risk.
Pre-attack mitigation can also reduce vulnerabilities;
modeling an assessment of risk can create a situation that
allows the demand for terrorism insurance to be quantified.
Modeling of terrorism risk must be based on accurate data and
the assessments must not be limited by a failure of
imagination.
Two examples from my home State of New York are
illustrative. The Department of Homeland Security used the
National Asset Data Base to help assess risk and thus share
funds with vulnerable communities. Unfortunately, this database
was full of activities such as petting zoos, popcorn packers,
pizza parlors, and, of course, the famous Mule Day in
Tennessee. While the Homeland Security Department disputes the
notion that this database is flawed, no one disagrees that
local politics help create a list of negligible utility.
Failures of imagination are equally dangerous. Our enemies
can think and they have constantly shown that they are willing
to try new attack methods and target sets. Accepting the status
quo for recognizing the threat is no longer good enough. For
instance, in my district, the Indian Point Nuclear Power Plant
sits on the Hudson River in the middle of the largest urban
area in the country. No one at the Department of Homeland
Security had ever questioned whether an attack by a high-speed
boat was possible despite suggestions that Al Qaeda has shown
an increasing interest in the sea as an attack vector. When I
asked the Coast Guard admiral responsible for planning to meet
the threat about this, he admitted that this was a threat that
was not being assessed. What other threats are we not preparing
for because we have not asked the proper questions? How do
unaddressed threats change discussions of what needs to be
insured and how much insurance we need?
I now yield to the ranking member from Illinois for his
opening statement. We are raising questions here. We hope that
this panel will help us find some answers.
Mr. Gutierrez?
Mr. Gutierrez. Good morning and thank you, Chairwoman
Kelly, and Chairman Simmons, who will join us shortly. I am
pleased to be here today along with our colleagues on the
Homeland Security Committee to review and discuss the effects
of terrorism on the insurance market. A strong, viable
insurance market is vital to the overall health of our national
economy. Nearly 5 years ago, the stability of the insurance
industry was put in jeopardy when insurers and re-insurers lost
more than $30 billion as a result of the 9/11 attacks.
Following the substantial losses, insurers were unable to make
terrorism insurance available, which left many of our Nation's
businesses vulnerable to unacceptable financial risk. In
response, Congress enacted the Terrorism Risk Insurance Act or
TRIA to provide a temporary, limited Federal backstop in the
event of another terrorist attack in the United States. I am a
strong supporter of TRIA and believe it is necessary to provide
stability for our economy in the post-9/11 world.
I was pleased that we passed legislation late last year
that extended TRIA until the end of 2007, but the 2007 deadline
is only 17 months away. And at this point, the market is not
yet stabilized, and the need for TRIA remains. I do not,
however, believe that TRIA is perfect in its current form; some
changes should be made to improve the legislation. We should be
mindful that TRIA is not intended to be a permanent program and
that eventually the private market must adjust. I do not want
to see the Federal Government as a permanent re-insurer of last
resort, at least not at the liability levels that exist under
the current version of TRIA.
In order for this to happen, however, the industry needs to
make substantial progress with its prediction models. I would
like to hear from our industry witnesses what they believe are
the specific weaknesses in the current prediction models, and
any suggestions they may have to improve the ability to access
and price terrorism risks. From our risk management experts, I
am interested in hearing about the progress they have made in
making models more accurate and what information they believe
they need to further improve accuracy. For example, in written
testimony, RMS proposes allowing the insurance industry or risk
management experts access to classified information. I am
curious about how this information can be kept secure while at
the same time used to improve prediction models. Finally, I am
interested in hearing our witnesses' opinions on improvements
to TRIA if and when another extension is considered. The bottom
line is terrorism insurance must continue to be available in a
comprehensive and affordable manner. Whether that includes
TRIA, another form of Federal backstop, or the private sector
assuming full liability remains to be seen. What we do know is
that strong markets require certainty and 17 months is a short
time in the forward-looking insurance industry. Therefore, we
must all act with deliberate speed in developing a more long-
term solution.
I yield back the balance of my time.
Chairwoman Kelly. Thank you, Mr. Gutierrez. I yield to the
gentleman from Connecticut.
Mr. Simmons. Thank you, Madam Chairwoman, and thank you
everybody for being here today. As chairman of the Committee on
Homeland Security's Subcommittee on Intelligence, Information
Sharing, and Terrorism Risk Assessment, I understand how vital
information sharing and risk assessment can be to understanding
the nature of the terrorist threat. The insurance industry
faces many challenges when attempting to model terrorism risks.
As a private sector entity, one of the key challenges is
getting information on the nature of the threat. In simplest
terms, risk assessment is the result of weighing vulnerability,
consequence, and the likelihood that an event may occur. But
without information on the nature of the threat, measuring risk
becomes extremely difficult. Often information related to
terrorism is sensitive, classified, and locked in a vault
somewhere. And while this secrecy culture is slowly changing,
some information on threats and vulnerabilities must remain
secret.
Many in private industry, including the insurance industry,
believe that they lack some of the very basic terrorist-related
information that would help them evaluate the likelihood of
future terrorist events. So one of the things that I would like
to understand, and that I hope our witnesses can help us to
understand here today, is where do you get your information? Do
you rely on open sources of information, for example? And what
kind of information could you use from the Federal Government
that might enhance your capabilities of assessing risk?
In addition to the difficulties associated with access to
information, measuring terrorism risk is, by its very nature,
more difficult than measuring the risk of a natural disaster. I
live in Connecticut and we have hurricanes. Hurricanes have no
motives--they come, they damage, and they go. But terrorists
are different. They rely on secrecy and unpredictability to
accomplish their task and even a seasoned intelligence
professional with access to our Nation's most compartmented
secrets may or may not be successful in predicting where
terrorists will strike.
In order to play their part in this country's
counterterrorism mission, private industry must rely on risk
assessment to determine what kinds of protective measures
should be taken at their facilities and what kind of insurance
should be purchased for their most important assets.
So we look forward today to hearing from our witnesses and
hope that they can shed further light on how to address some of
these concerns. I think you all for being here. I thank
Chairwoman Kelly for calling this important hearing, and I
yield back.
Chairwoman Kelly. Thank you. I yield now to the ranking
member from California.
Ms. Lofgren. Thank you, Madam Chairwoman, and Chairman
Simmons. As we know, the Committee on Homeland Security has
jurisdiction over issues relative to homeland security under
the House rules and nowhere in the House rules is there an
explicit or implicit mention of the Committee on Homeland
Security's jurisdiction over insurance. I am raising this issue
to point out striking inconsistencies in the interpretation of
the Committee on Homeland Security's jurisdiction.
On April 6th of this year, I sent Mr. Simmons and Chairman
King a letter explaining why I believe that the Committee on
Homeland Security has jurisdiction over matters involving the
National Security Agency, homeland security, and potentially
illegal eavesdropping by the NSA. In an April 25th response to
my letter, Mr. Simmons and Chairman King disagreed that the
Committee on Homeland Security had jurisdiction over the
potentially illegal eavesdropping by the NSA. As Chairman King
stated in his letter, ``The House rules empower the Committee
on Homeland Security to review and study on a continuing basis
all government activities relating to homeland security,
including the interaction of all departments and agencies with
the Department of Homeland Security.'' Nevertheless, Chairman
King seemed to have parsed words to conclude that the Committee
on Homeland Security does not have jurisdiction over
eavesdropping by the NSA. It seems to me that if the
Subcommittee on Intelligence does not have jurisdiction to take
a look at the NSA and the potential illegal activities that
they are engaging in, it is quite a stretch to say that we have
jurisdiction over insurance. So I am hoping, and formally will
be asking with a later letter, that the issue of review of NSA
and the Intelligence Subcommittee's jurisdiction be revisited
by the chairman of the full committee as well as the chairman
of the subcommittee. And I believe that while this insurance
issue certainly is of interest to the committee of
jurisdiction, certainly the committee of jurisdiction over
intelligence should be taking up the NSA matter. And I yield
back.
Chairwoman Kelly. Thank you. I will turn now to the ranking
member of the full committee, Mr. Frank.
Mr. Frank. I thank the gentlewoman. And let me say
preliminarily that I am no longer on the Homeland Security
Committee because when it became a standing committee in the
House, by Democratic Caucus rules as the ranking member of this
full committee, I wasn't eligible to serve, but I was
interested, and I am supportive of the gentlewoman's concern. I
would say I think probably the response you would get from some
quarters is that the reason that the Committee on Homeland
Security doesn't have any jurisdiction over the NSA wiretapping
is that in the opinion of the Administration, Congress doesn't
have any jurisdiction over this. So the lesser is shut out by
the greater in this case. And if they don't think it is any of
our business, then it is no committee's business.
I am pleased that the two committees are working together
in this hearing. We have too much turf consciousness in this
Congress and sometimes that gets in the way of substantive
considerations. I think it is a good idea that we are having
this joint hearing. And I want to talk particularly about the
public policy rationale for terrorism risk insurance. I want to
address some of my friends in the consumer movement, some of
whom have been critical of this. I was struck, as I read
through the testimony--because I am not going to be able to
stay, as we have bills on the Floor from this committee today--
by Mr. Lewis' remarks about the public policy implications
here. I want to stress that in addition to the argument that
after all, in many cases when you are the insured, we tell you
that you have an obligation to reduce your risk. You have an
obligation to reduce your risk of theft, of fire, and of
vandalism. However, it is very hard to tell private sector
people to reduce their risk from terrorism. Now I know they
try. I wish sometimes they wouldn't. I think it has become a
sign of ego that you make it hard to get into your building. It
cannot be that every office building in Washington and New York
is a target for terrorism, but I think if you don't have
someone there to harass your visitors, then you feel like you
are not important. And if no one wants to blow you up, then you
must not be a big deal, and therefore you have somebody who is
sitting there and looking at people's driver's licenses to no
practical effect whatsoever if there was a serious problem.
But there is nothing you can do to protect yourself against
being the victim of terrorism. You might be able to mitigate
the effects somewhat, but that is the minor part of it. And
that reduces the argument that the cost of this should be borne
by the insured because you are asking people to bear a cost
over which they have no control. But even more than that, as
people have indicated, and the gentleman from Connecticut
indicated, we are talking here about a situation where there
are bad people and elements within the United States
consciously seeking to inflict harm on the United States. To
the extent that we allow the individual victims to bear the
cost, we are implicitly cooperating with the terrorists. That
is, the cost of terrorism ought to be borne by the whole
country, and we should not allow terrorists to pick and choose
which Americans are going to bear the cost. We should not allow
them to say, well, the big cities will be more vulnerable. And,
again, when you take into account the fact that we have a
situation where the victims may not have a very good ability to
stave off the damage and where it is a conscious decision by
evil people to inflict harm on us, then we ought to all be
willing to bear the cost. I don't want to have a situation
where, if a terrorist attacks some place in America, the rest
of us can say, ``Boy, we sure are lucky that we weren't hit.
That poor so-and-so has to bear the cost.'' No, let's say that
America has been attacked and we will together bear the cost of
that.
Now, obviously, there are some cases in which you can't do
that; nobody can share the loss of life or other factors. But
to the extent that we can make these costs go across the board,
we ought to do that. Now there is also, of course, a particular
economic effect, it is not just the whole economy as people
mentioned, but when we were doing terrorism risk insurance and
we were encountering, I think, a kind of free market
fundamentalism, I don't think it is a violation of the
principles set forward by Adam Smith to take into account a
phenomenon, terrorist bombings, that he could not possibly have
known. This is not something that the market was ever intended
to deal with. But it does not fall equally on the whole
country. It is obviously particularly a problem for people who
would be doing large projects in big cities. And I do not think
we ought to say that in addition to the other problems that
some of our bigger cities have, that we ought to leave them
entirely on their own for bearing the cost of terrorism risk
insurance. And it is very much, as it has been presented to us,
a big city issue. The Department of Homeland Security's lists
of terrorist targets notwithstanding, there aren't going to be
that many amusement parks outside that are going to be
targeted.
So I think there was every public policy reason for us to
go forward with this. It is a national obligation to help
people respond to a threat that is against the whole Nation and
against which they cannot be expected themselves to defend. I
think we did the right thing in going forward with terrorism
risk insurance. I hope we will put it on a permanent basis and
those who inaccurately think that this is something that can be
left to the market when no theory of the market I have ever
read provides for this kind of phenomenon that we will reject
their views.
Thank you, Madam Chairwoman.
Chairwoman Kelly. Thank you, Mr. Frank. Mr. Garrett.
Mr. Garrett. Yes, thank you, Madam Chairwoman. I was going
to do opening remarks but the ranking member raises an
interesting analysis of how we should be spreading the risk or
who should be actually bearing it, as to whether it is a risk
that you can insure against or not. I will just throw out this
one question because I have also looked through some of your
testimony, Mr. Ulrich. Risk Management Solutions makes a
statement, I don't want to preempt your statements here since
it is a good statement, regarding the terrorist activity, ``It
isn't a matter of if but when with hurricanes. And it isn't a
matter of when but how many.'' I think that is an interesting
analysis to go along with this. But with the ranking member's
comments, I agree with you as far as the minimalist effect that
industry or individuals or insurers may do as far as putting
that individual in front of the store or the business office,
but on the other hand, there are certain cases where we know
that elements are a higher risk. Just reading about today in
New Jersey as to what we can do to protect tanker cars along
the New Jersey Turnpike and whether the homeland security chief
there says we should be building walls to protect them so you
can't see those tanker cars all along the turnpike so you can't
shoot them or whatever else and blow them up. In certain
instances, you know that you are at a greater risk than
somebody else. And from an insurance point of view, (A), should
there be safety remediations and should risk factors come into
play in that case; and (B), should we be looking to see whether
risk premium rates should be higher for some individuals than
others. Because I see--I will conclude on this--at the bottom
line, looking at all your testimony, everyone agrees on the
panel, I think, that some version of TRIA must be there as a
backstop, but what obligation is there still on the insured in
these cases, I guess, is my ultimate question?
Thank you. I yield back.
Chairwoman Kelly. Thank you, Mr. Garrett. Mr. Moore.
Mr. Moore of Kansas. I want to thank you, Madam Chairwoman,
for convening this hearing. I do not have an opening statement.
I look forward to the testimony of the witnesses. Thank you.
Chairwoman Kelly. Thank you. Ms. Lowey.
Mrs. Lowey. Thank you, Madam Chairwoman, and I look forward
to the testimony of the witnesses, and I will hold my comments
until that time. Thank you.
Mr. Gutierrez. Madam Chairwoman, I ask unanimous consent
that Congressman Israel, who is not a member of the Oversight
and Investigations Subcommittee, be allowed to participate in
today's hearings.
Chairwoman Kelly. So ordered. Mr. Scott?
Mr. Scott. I think we should get right to the witnesses. I
will not have an opening statement. Thank you.
Chairwoman Kelly. Thank you. Mr. Israel?
Mr. Israel. Thank you, Madam Chairwoman. Let me thank you
and the ranking member for allowing me to participate in this
hearing. As was indicated by the ranking member, I am not a
member of this subcommittee but I did work very closely with
Chairwoman Kelly on the full Financial Services Committee on
TRIA, and we were able to arrive at a bipartisan consensus that
has been helpful. Of course, the clock is ticking. We have 17
months left and although I very strongly and fully support
TRIA, and it has been one of my priorities over the past 3
years, I do not believe that there is much of an appetite to
give TRIA yet another extension under the terms that it
currently includes. We need to begin developing consensus now
because, as we all know, Congress is not known for moving at
lightning speed. So it is critically important that we begin to
develop this consensus, and that folks in industry begin to
weigh in so that we can develop a sensible policy in this
country.
The premise of TRIA is quite simple: An attack on this
country is not an attack on a building. It is an attack on this
country. It is not an attack on bricks and mortars and glass,
it is an attack on the lives inside that building. It is not an
attack on a bunch of companies. It is not an attack on the
insurance industry. It is an attack on the United States of
America and its citizens. And the Federal Government does have
an obligation to help defend against the economic consequences
of that attack. This is critically important. And I am very
concerned that we not have deja vu all over again, in the
immortal words of Yogi Berra, that as we begin to approach the
deadline where TRIA will in fact expire, at the very last
minute, suddenly people begin to scramble. That gets very messy
when you are working against a ticking clock. It gets very
messy in a climate of partisanship. And so I would strongly
urge all concerned parties to begin working now, sooner rather
than later, begin to weigh in with both sides of the aisle on
the Financial Services Committee so that we can produce a
product that keeps my constituents and all of my colleagues'
constituents safe from another attack.
I want to again thank the chairwoman and the ranking member
for their hospitality, and I yield back my time.
Mr. Gutierrez. Madam Chairwoman, I ask unanimous consent
that Congressman Crowley be allowed to participate in the
hearing.
Mr. Crowley. Thank you, Madam Chairwoman. I also want to
thank you and the ranking member for holding this hearing. I
think it is important that we get this right. It is too
important for industry, not only in my city but throughout this
country, that terrorism risk insurance and a way forward with a
Federal backstop that is workable, that is something that
encompasses the needs of industry as well as developers to do
the work that they need to do to keep our economy viable. And I
thank you for holding this hearing today and look forward to
hearing the testimony this morning.
Chairwoman Kelly. Thank you very much. We turn now to our
witnesses.
Terry Fleming is the director of Risk Management for
Montgomery County, Maryland. The county's self-insurance
program provides property and casualty coverage for 14 agencies
covering more than 40,000 employees. Mr. Fleming and the
county's self-insurance program have been recognized as
reputational leaders by the American City and County Magazine.
Mr. Fleming has over 35 years experience in insurance and risk
management in the public and private sectors.
Peter Ulrich is the senior vice president of RMS' model
management team. He has been with RMS since 1993. Prior to
joining RMS, Peter spent 8 years with Peterson Consulting.
Peter earned a B.S. in accounting and finance from the
University of California at Berkeley and a MBA from the
University of Southern California.
Jeff DeBoer is president and CEO of the Real Estate
Roundtable, an organization that represents the leadership of
the Nation's top 100 privately owned and publicly-held real
estate ownership development, lending, and management firms, as
well as the elected leaders of the 15 major national real
estate industry trade associations. He also serves as co-
chairman of the advisory board of the Rand Corporation's Center
for Terrorism Risk Management Policy and is chairman of the
National Real Estate Organizations, a coalition of real estate
trade associations working together to enhance the coordination
of the industry's overall Washington advocacy efforts. A native
of Rapid City, South Dakota, Mr. DeBoer has earned a law degree
from Washington and Lee University in Lexington, Virginia, and
an undergraduate degree from Yankton College in Yankton, South
Dakota.
And finally, Christopher M. Lewis. I am going to yield to
the gentleman from Connecticut, for the purpose of introducing
our final witness.
Mr. Simmons. I thank the Chair for that courtesy. And I am
especially pleased today that Chris Lewis is with us to testify
at this hearing. Mr. Lewis is the vice president of Alternative
Market Solutions and Capital Management at the Hartford
Financial Services Group and lives in the wonderful town of
Tolland, Connecticut, which I am pleased to represent. He is
also responsible for the Hartford's risk management initiatives
and works with policymakers on issues related to the risk of
manmade and natural disasters. Prior to joining The Hartford,
Mr. Lewis was managing director and global head of Advisory
Services for Fitch Risk Management, and he also spent 5 years
as a senior economist at the Office of Management and Budget
where he was a member of the White House Working Group on
Natural Disasters. Welcome, Chris. We look forward to your
testimony.
Chairwoman Kelly. Thank you. Now, without objection, the
witnesses' written statements will be made a part of the
record, and you are each going to be recognized for a 5-minute
summary of your testimony. I believe all of you understand the
function of the small black box with the lights on the table.
Please note that the red light doesn't mean sum up, it means
that it is time to finish your 5-minute statement. With that,
we turn first to you, Mr. Fleming. And thank you all for being
here.
STATEMENT OF TERRY FLEMING, DIRECTOR OF EXTERNAL AFFAIRS, RISK
AND INSURANCE MANAGEMENT SOCIETY
Mr. Fleming. Chairwoman Kelly, Chairman Simmons, and
members of the subcommittees, good morning. My name is Terry
Fleming. I am a director of External Affairs for the Risk and
Insurance Management Society, RIMS, and I am also director of
risk management for Montgomery County, Maryland. I am pleased
to be here today to talk about terrorism concerns and the
insurance market, particularly from a risk management
perspective.
RIMS represents commercial consumers of insurance. As the
country's largest professional risk management organization,
RIMS represents nearly 4,000 industrial, service, non-profit,
charitable, and governmental entities, including 83 percent of
the Fortune 500 companies. As a risk manager, it is my
responsibility to identify exposures to financial loss that my
employer might suffer and to mitigate those exposures using a
variety of techniques. The principal techniques used to manage
the terrorism exposure on the part of an individual company or
self-insured entity are control--taking steps internally to
reduce the threat to employees and property; retention or self-
funding a portion of any loss; and the purchase of commercial
insurance.
Prior to September 11, 2001, terrorism was a mere blip on
the radar screen for risk managers. We were certainly aware of
the Oklahoma City bombing and previous attacks on the World
Trade Center. But terrorism was not an issue prior to 9/11
quite simply because it was covered by virtually every
insurance policy that was issued. After 9/11, it was covered by
virtually no insurance policies until the enacting of the
Terrorism Risk Insurance Act. And while I understand that this
meeting is not specifically about TRIA, any discussion about
terrorism and insurance must include the recognition that TRIA
is vitally important to business and the economy. It is only
because of TRIA that the insurance market calmed down and
businesses can obtain terrorism insurance at affordable rates.
As explained in detail in our written statement, unless a
permanent solution to the terrorism risk is developed and
implemented prior to the sunset of TRIA, there will be a
significant impact on the economy.
Along these lines, RIMS recently conducted an informal
survey of its membership asking about terrorism insurance
coverage to get an idea of current market conditions. Eighty-
six percent of respondents to our survey said that if TRIA or
some other Federal backstop were not in place, they do not
believe that they would be able to obtain sufficient coverage
for acts of terrorism at affordable prices. Eighty-two percent
said that coverage should be available for nuclear, biological,
chemical, and radiological--the so-called NBCR exposures. But
91 percent said they do not have coverage for this currently.
Coverage for NBCR exposures is typically excluded from
commercial insurance policies with the notable exception of
worker's compensation insurance.
As an indicator of what might be expected if a TRIA-like
program were not in effect, 75 percent of our member
respondents said that prior to the extension of TRIA, their
insurance policies contained coverage conditioned on the
extension of TRIA. Seventy-six percent stated that they believe
the terrorism coverage limits would have been decreased had
TRIA not been extended, and 82 percent believe their insurance
premiums would have increased. In this regard, for example, one
of our members reported that insurance premiums for a property
they own in a large metropolitan area went from $200,000 in
2005, to $500,000 in 2006, with a reduction in policy limits.
Furthermore, the member's insurance broker has stated that
insurance companies are unwilling to commit to insuring
construction projects with terrorism coverage if the completion
date goes beyond December 31, 2007, the sunset date of TRIA.
RIMS believes that it is critical that a program be
developed to ensure continued coverage for acts of terrorism,
including NBCR coverage, and our written statement itemizes the
principles that we think should apply to the development of a
long-term solution.
Thank you for the opportunity to testify on this extremely
important issue. RIMS appreciates your committees holding this
joint hearing and looks forward to working with you to address
the issue of terrorism and insurance. Thank you.
[The prepared statement of Mr. Fleming can be found on page
48 of the appendix.]
Chairwoman Kelly. Thank you very much, Mr. Fleming.
Mr. Ulrich.
STATEMENT OF PETER ULRICH, SENIOR VICE PRESIDENT, MODEL
MANAGEMENT, RISK MANAGEMENT SOLUTIONS, INC.
Mr. Ulrich. Thank you for the opportunity to testify here
today. For those of you who do not know who Risk Management
Solutions is, RMS is the world's leading provider of technology
and services for the managing of catastrophic risk, both
natural perils, such as earthquakes and hurricanes, as well as
terrorism risks. We first released our terrorism model in 2002
and today have over 100 insurers and re-insurers actively using
the model to manage risk.
Just to clarify what a terrorism model is, we do not try to
predict the time and place of the next terrorist attack. What
we do--for a location or portfolio of hundreds of thousands of
locations, we assess the likelihood that any of those may
sustain property, business interruption damage, or human
casualties under a spectrum of possible terrorist attacks from
small bombs to large truck bombs, airplane hijackings, nuclear
power plant sabotage, or CBRN attacks. And our model is built
totally with open source information, which I understand about
80 percent of intelligence information is open source today.
But the types of sources we rely on are, for example, we have a
statistical database of over 20,000 terrorist attacks around
the world since 2001. Over 1,000 of these are what we would
call macro attacks, car bombs or larger. And focusing on
Jihadist attacks in this database, you can see that 45 percent
of the attacks around the world come against the major
political or economic capital of the country, a New York or
Washington, D.C., type city. If you look at the top five cities
where attacks occur, that is 67 percent of the likelihood.
Looking at this database, you can also see the types of weapons
used. For example, over 75 percent of the attacks around the
world are improvised explosion devices, IED's. You can also see
the distribution of small bombs versus large bombs. The types
of attacks the jihadists prefer is at government buildings,
hotels, infrastructure, and train stations. This is all
valuable information that is available.
We also look at academic literature on the motivation and
objectives of the terrorist threat groups. We work with weapons
experts on understanding the cost and logistics of the
different attack modes. How hard is it to build a two ton bomb?
How hard is it to get it to detonate efficiently? If you want
to sabotage a nuclear power plant, what kind of skills do you
need? How realistic a threat is that?
And, finally, we also rely on expert opinion. We have
formed a group of some of the world's leading experts in
terrorism threats to help advise us on understanding current
trends, people like Bruce Hoffman, Rohan Guneratna, and Magnus
Ranstorp, who are all key advisers to the U.S. Government. We
have not had access to any classified information and, frankly,
the most sensitive information probably wouldn't help us. We
don't need to know that you have someone under surveillance at
123 Main Street in San Francisco. Classified information is the
big unknown. I don't know what you have that we aren't privy
to, but if I had a wish list, the type of things that would be
helpful would be information on interdicted attacks that is not
public domain. For example, how many attacks have been stopped
that the public is not aware of, what types of targets were
they after, what type of weapons were they planning to use, how
many terrorists were involved, how close to success did they
come, and how were they caught? Any indication of change in MO.
Al Qaeda has been very focused on very low frequency, high
severity attacks, spectacular attacks, such as the World Trade
Center, that had a spectacular impact, high economic loss, high
human casualties, and great symbolic value. If they want to
change to where they are going to have 100 people go out into
the public with explosive vests and there is intelligence that
indicates that, that would be very helpful to us.
Finally, capability assessments. There is certainly
information out there about how there are nuclear warheads
unaccounted for from the former Soviet Union. And if it was
confirmed that, yes, they are missing, and they are in fact in
the hands of terrorists, that would be very helpful information
to know. Other information might just be intelligence on the
effectiveness of our border security, land borders, air
borders, sea, and cargo shipments, as well as security ratings
of various cities or individual targets. And all this would
help improve the models and reduce uncertainty in the models.
And on the topic of uncertainty, I was asked to comment on
the uncertainty of terrorism versus natural catastrophe. I
think it is interesting that last year there were 27 named
storms in the Atlantic Basin, unprecedented, whereas with
terrorism there has not been a terrorist attack since 9/11. And
it is partly controllable. If you tried to hijack a plane after
9/11, you couldn't do it the next day because there were no
planes flying. And eventually if there was a successful attack,
the United States does have the ability to raise defenses. And
you can bet that it would not be possible to hijack a plane
again.
So with that, I will close. Thank you.
[The prepared statement of Mr. Ulrich can be found on page
70 of the appendix.]
Chairwoman Kelly. Thank you very much.
Mr. DeBoer?
STATEMENT OF JEFFREY D. DeBOER, PRESIDENT AND CEO, THE REAL
ESTATE ROUNDTABLE
Mr. DeBoer. Thank you, and good morning, Chairwoman Kelly,
Chairman Simmons, and members of the two subcommittees. Thank
you very much for holding this joint hearing today. My name is
Jeff DeBoer, and I am president and CEO of the Real Estate
Roundtable. As was mentioned, I also serve as co-chair of the
Advisory Board for the Rand Center for Terrorism Risk
Management. I am also chairman of the Real Estate Information
Sharing and Analysis Center or ISAC, and I participate as a
steering committee member for the Coalition to Insure Against
Terrorism.
From the policyholder perspective, obtaining terrorism
insurance is critical to developing, financing, and
transferring business property. The amount of needed terror
insurance is dictated by lenders and by rating agencies. They
have historically taken the position that all risk coverage
requires terrorism insurance. Loan amounts must be covered by
terror insurance to be approved and bond issuance must have
adequate terror insurance to be attractively rated. And this
view has been supported by the courts and it in effect creates
a high demand for this product. Without terrorism insurance, we
believe economic transactions will be smothered and jobs will
be at risk. A Real Estate Roundtable survey taken in the post-
9/1l, pre-TRIA days indicated that about $15 billion worth of
real estate transactions had been stalled or completely
canceled nationwide. The Council of Economic Advisors at the
time stated approximately 300,000 jobs were lost during this
period. Almost overnight, it is worth remembering, upon
enactment, TRIA filled the re-insurance crater. Insurance
capacity returned and transactions resumed. In particular,
stalled construction projects moved forward to the benefit of
countless workers in the construction trades.
Today, I would like to say that demand for terrorism
insurance is extraordinary. Studies of take-up rates show a
higher terror take-up rate than the take-up rate in almost any
other product where Federal or State Government is providing a
capacity backstop in effect. And that includes flood, crop,
earthquake, or previous riot and crime control programs. A
Mortgage Banker's Association survey has revealed that about 84
percent of commercial loans surveyed had terror insurance in
place. I am sometimes asked, who is buying this coverage?
Financial institutions, real estate firms, and health care
facilities have the highest take-up rates. But right behind
them are media companies, education institutions, energy
companies, and transportation firms.
Having said that, Roundtable members today report to me
that the insurance markets are increasingly difficult. The
multiple catastrophic exposures of hurricane, flood, wind, and
earthquake, on top of terrorism, plus the high retention rates
of TRIA and the pending expiration date that has been
mentioned, have caused many insurers who are concerned about
aggregation risks to leave markets.
Also, as has been mentioned, according to a Moody's report,
a high percentage of all policies written prior to TRIA's
enactment contained the springing exclusions, which would
automatically void coverage if TRIA had not been done on
January 1, 2006. This is happening again in the marketplace.
Businesses now shopping for policies that run past 2007 year
end are being once again asked to accept these springing
exclusions. We believe this is strong evidence that without
Federal involvement, insurance availability would drop
substantially.
The ultimate victims of all of this, of no Federal program,
would not be the insurance industry, although they are
frequently talked about, it would be the American economy; it
would be bond holders, pension investors, and jobs. America's
industries are highly concerned with nuclear, biological,
chemical, and radiological exposures. Even though TRIA does
cover these perils, we see no evidence in the marketplace today
that this is being written except where mandated in worker's
compensation coverage.
Regarding risk mitigation, I share many of the concerns
that Mr. Frank mentioned. Having said that, however, the
industry is spending large sums on security measures. It is
important to note also that terrorism risk management strategy
is now at the board level for large-scale property owners.
Building tenants are being urged to have emergency protocols
and owners are urging all tenants to coordinate their plans
within the buildings.
Our industry has also undertaken an unprecedented multi-
sector initiative to share information on related terror risks.
I would conclude on this point by saying that our industry
standard benchmarking reference shows that the industry as a
whole is spending about 20 percent more on security related
measures than they were pre-9/11.
But mitigation is not enough nor is it being appropriately
reflected in insurance premiums. A long-term policy solution to
this long-term risk must be found. TRIA and TRIEA both have
been good programs, and perhaps they can be extended, but they
are not the only potential answer. I would invite you to look
at a program that we have attached to our statement.
In conclusion, without Federal involvement, we don't think
there will be adequate insurance capacity to protect the
economy in the face of a terrorist attack or to allow an
economy to recover after an attack.
Thank you again for the opportunity to be with you this
morning.
[The prepared statement of Mr. DeBoer can be found on page
30 of the appendix.]
Chairwoman Kelly. Thank you, Mr. DeBoer.
Mr. Lewis.
STATEMENT OF CHRISTOPHER M. LEWIS, VICE PRESIDENT, ALTERNATIVE
MARKET SOLUTIONS, P&C CAPITAL MANAGEMENT, THE HARTFORD
FINANCIAL SERVICES GROUP, INC.
Mr. Lewis. Thank you. Chairwoman Kelly, Chairman Simmons,
Ranking Member Gutierrez, Ranking Member Lofgren, and members
of the subcommittees, thank you for the opportunity to appear
before you today to discuss the challenging issue of managing
the threat of terrorism to the U.S. economy. My goal today is
to provide perspective on the difficulties faced by the
insurance industry as financial intermediaries helping
companies to pool and manage risks, including the risk of
terrorism. If it pleases the subcommittees, I will submit my
full testimony in writing for the record and restrict my oral
testimony to a summary of two key observations.
First, terrorism is an uninsurable risk. Terrorism fails to
meet the fundamental requirements for insurance. The risk of
terrorism does not impact policyholders in a manner that is
homogeneous, random, and independent across other
policyholders. Moreover, the risk of terrorism is not well
understood. Unlike the case of natural catastrophes, the
insurance industry has no credible data or models that can be
used to quantify the likelihood of a terrorism attack, the form
of such an attack, and the location at which such an attack
could take place. As a result, the industry cannot effectively
price terrorism insurance and is forced to manage the risk of
terrorism through exposure limits on entire commercial
policies, often to the detriment of our policyholders.
Second, the disappearance of Federal terrorism re-insurance
could result in major coverage disruptions for policyholders.
To see this, we need look no farther than the largely
unregulated markets for traditional re-insurance and capital
market insurance securitizations. Despite extremely high
primary insurance company retentions under TRIA, the
traditional reinsurance market has restricted reinsurance
capacity for terrorism to de minimis levels. We have virtually
no coverage provided where it counts, for terrorist losses
caused by nuclear, biological, chemical, or radiological
weapons.
In the area of insurance link securitization, I can assure
the subcommittees that virtually no meaningful capacity exists
today to securitize terrorism risk. Having established and
maintained an insurance link securitization program for natural
catastrophes since 2004, The Hartford has spent considerable
time and energy attempting to leverage this technology to help
finance the risk of terrorism. Not surprisingly, the same
obstacles that impede the insurability of terrorism for the
primary insurance and the reinsurance companies are preventing
the development of an insurance link securitization market for
terrorism. Therefore, in conclusion, I firmly believe that any
credible solution for financing the risk of terrorism in the
U.S. economy will require a continued partnership between the
private insurance industry and the Federal Government.
Thank you.
[The prepared statement of Mr. Lewis can be found on page
66 of the appendix.]
Chairwoman Kelly. Thank you, Mr. Lewis. I ask unanimous
consent that the statements of the Independent Insurance Agents
and Brokers of America, the Rand Corporation, and the American
Insurance Association be entered into the record. So moved.
I would like just a yes or a no answer from each member of
the panel to the following question: Do you believe that the
threat of terrorism increases or decreases as we move away from
9/11? Just say increase or decrease, so I have some kind of
picture of what your thinking is. Mr. Fleming?
Mr. Fleming. Increase.
Chairwoman Kelly. Mr. Ulrich? Real simple, one word.
Mr. Ulrich. Increase.
Chairwoman Kelly. Mr. DeBoer?
Mr. DeBoer. Given those two choices, increase.
Mr. Lewis. Same, increase.
Chairwoman Kelly. Well, we will get to the nuances now. I
would like to ask you whether a distinction between foreign and
domestically-inspired acts of terror is meaningful from a risk
assessment point of view? Mr. Fleming?
Mr. Fleming. RIMS believes that the distinction should be
eliminated. Just looking at what happened in England last
summer, they were homegrown terrorists but citizens of Great
Britain, and we are concerned that the same kind of situation
is going to occur here. If it happened in America, the
distinction may have eliminated coverage under TRIA if they
were homegrown domestic terrorists.
Chairwoman Kelly. Thank you. Mr. Ulrich?
Mr. Ulrich. From a threat standpoint, there is an extreme
difference between the foreign threat and the domestic threat.
Chairwoman Kelly. Would you like to elaborate on that?
Mr. Ulrich. Well, there is no reason to believe right now
that there is a Timothy McVeigh lurking out there right now but
Al Qaeda has stated that they want to attack the United States.
So the domestic threat exists but it is relatively minor. It is
mostly people like the Animal Liberation Front, and the Earth
Liberation Front, who are more after publicity than massive
destruction, while Al Qaeda's objectives are to create as much
havoc and destruction as possible.
Chairwoman Kelly. Mr. DeBoer?
Mr. DeBoer. I think asking the Secretary of the Treasury to
make a distinction of whether an act has been perpetrated by a
foreign movement or by a domestic movement is artificial and
irrelevant, and I think it should be eliminated.
Chairwoman Kelly. And I think it should be eliminated. Mr.
Lewis?
Mr. Lewis. I think given events overseas and trends that we
see in the overall threat assessment, it is going to be
increasingly difficult to distinguish whether or not an event
is a certified or non-certified event. And I think the
distinction is no longer going to be relevant going forward.
Chairwoman Kelly. Thank you. Terrorists assess the
likelihood of completing an attack and the amount of damage
they will cause when selecting targets. So, consequently, pre-
attack mitigation can help deter attacks or change the target
set. Where do you think Congress can do more to encourage pre-
attack measures in the private sector? Mr. Fleming?
Mr. Fleming. Well, the Federal Government has been very
supportive of local governments in this area. Montgomery County
has received a number of grants, helping us to harden our
buildings, and to make people more aware of terrorism. I think
that the Federal support, as more targets, the softer targets,
become recognized by the people who are identifying exposures
to terrorism coverage, that it needs to trickle down to a much
bigger part of the economy.
Chairwoman Kelly. Mr. Ulrich?
Mr. Ulrich. They can help by prioritizing spending on the
targets at greatest risk. But it is important to note that
terrorism risk is like a balloon where if you squeeze the risk
in one place, it pops out somewhere else. So as you protect one
target, it just makes a neighboring target that is unprotected
more likely to be attacked.
Chairwoman Kelly. So you would think that we should
encourage pre-attack measures everywhere?
Mr. Ulrich. Not everywhere, starting with the high-priority
targets, the targets at greatest risk.
Chairwoman Kelly. Risk assessed?
Mr. Ulrich. Yes.
Chairwoman Kelly. Okay, thank you. Mr. DeBoer?
Mr. DeBoer. Well, mitigation is a big concern of the real
estate industry and, as I mentioned, we have, as an industry,
spent substantial sums already on security personnel, barriers,
other surveillance techniques. Our HVAC systems are now much
more secure than they were before and the industry is spending
a huge amount, both at the board level and on the ground making
things more secure.
Having said that, I think the most important thing, and it
was mentioned earlier, I think by Chairman Simmons, and that
has to do with information. What could mitigate the risk for a
lot of buildings and building owners and their tenants is a
proper flow of information from the Federal Government through
the ISAC system back down to the ground.
Chairwoman Kelly. Mr. Lewis?
Mr. Lewis. I think when assessing the threat of terrorism,
it is important to keep in mind the interdependent nature of
the terrorist threat so that for any given property, while you
could try to harden that property, you can't harden the
property next door where if a terrorist attack occurs there, it
is still damaging your property. So it is a challenge to try to
establish effective mitigation for such a wide ranging threat
that is dynamically evolving. I am not qualified to understand
where the government should align its resources to counter
terrorism based on the information that they have. I just think
it is important to keep in mind the dynamic nature of that
threat.
Chairwoman Kelly. Thank you. I am out of time. I turn now
to Mr. Gutierrez.
Mr. Gutierrez. Thank you. The first question is for Mr.
DeBoer. The Real Estate Roundtable's proposal to create a
Homeland Security mutual pool is an idea that I believe
deserves some consideration. I want your assurance, however,
that you do not anticipate any direct appropriation for this
program. Another concern I have is the creation of another even
larger GSE-type organization that creates a ``two big to bail
problem.'' Would you please address that issue?
Mr. DeBoer. Well, the appropriation issue, the way that
this program would be funded would be by assessments of all
insurance companies up-front, and then an ongoing assessment
for insurers who want to participate in the program, and they
pay a premium to get it up and running. To the extent that
there is an appropriation, there is probably going to have to
be a backstop continued during the early years while that pool
builds up. So in effect, as the pool builds up, the backstop
stands down, to coin a phrase. So there is not any direct
appropriation involved. Obviously, over a period of time the
pool would be built up, and we would anticipate that building
up to $30- or $35 billion would provide the kind of layer that
needs to exist between the taxpayer and loss coverage. Above
that amount, I think that most everyone would admit that it
gets to be a catastrophic loss, and the Federal Government is
probably going to have step in. But, no, we are not talking
about a GSE. We are not talking about too big to fail. We are
not talking about an appropriation.
Mr. Gutierrez. Thank you. Mr. Ulrich, in your testimony you
proposed adding intelligence information to risk modeling to
produce greater accuracy. This raises many red flags, for
instance you mentioned the need for careful management of real
time intelligence information to avoid what you refer to as a
commercial asymmetry. That may be true, but I have other
concerns. If real time information is made available to many
different entities, how can we possibly expect this information
not to be made public? Even if we don't allow real time
information to be used by the insurance industry, how do you
propose to protect the information in general?
Mr. Ulrich. That is a very good question. Our models are
used by insurers around the world, so if it is incorporated
into our model, it would essentially become public information.
I think it would require that classified information become
declassified because we couldn't protect it, since people would
be using it.
Mr. Gutierrez. Mr. Lewis, you seem to be the most
pessimistic of our witnesses regarding the ability to
accurately assess terrorism risks. Mr. Ulrich, on the other
hand, seems to have a little more confidence in our ability to
predict and assess risks. In his testimony, Mr. Ulrich proposes
that declassifying of certain information or even allowing the
industry access to classified information would allow the
industry to improve its model. Do you agree with this
proposition? If so, would such a move substantially increase
your confidence in the models? If you disagree, what, if
anything, can be done to improve the reliability of predictive
models?
Mr. Lewis. Thank you. That is a very good question. Not
knowing the classified information that exists, it is difficult
to comment on what value that information would add. I think it
is important though that even if that information, at a certain
point in time, helps us to understand the nature of the risk at
that point in time, as we have discussed, the nature of the
terrorist threat is constantly evolving and changing. So as
soon as we know how to protect against a certain type of
attack, the terrorists change their attack modes; they change
the delivery mechanisms to bypass that. So I am still
challenged to understand how having that information could
create materially more confidence in our ability to understand
and price for the threat of terrorism. Clearly, more
information is generally good, we have seen that on the
hurricanes side with respect to cooperation with NOAA. But I
still don't see with respect to the threat of terrorism, given
its dynamic nature, how much further along that actually pushes
us.
Mr. Gutierrez. Mr. Ulrich, do you have anything to add to
the comment just made by Mr. Lewis?
Mr. Ulrich. No, I would agree that until I saw what
information was available, classified information that could be
made available, I would be unable to tell you what kind of
changes would go to the model.
Mr. Gutierrez. That is fair. Mr. Fleming, in your testimony
you state that it is unreasonable to expect that the insurance
market is going to respond to the need for terrorism insurance
when it is having difficulty responding to the need for more
predictable risk, like natural disasters. This sounds like you
believe that the Federal Government will be the permanent re-
insurer of terrorism risks. Is that the case? And do you
believe that a voluntary mutual re-insurance entity, as
proposed by The Real Estate Roundtable, might work in shifting
the primary backstop burden away from the Federal Government?
Mr. Fleming. RIMS believes that the private insurance
market is not capable of responding by itself and that there
needs to be some form of either a public/private partnership or
some form of a backstop.
I was in a meeting recently with some senior underwriters
from the largest insurance companies. They indicated that the
capacity in today's market is anywhere between $60- and $85
billion to respond to a terrorist attack or any catastrophe.
Obviously, looking at Hurricane Katrina, we are approaching the
$60 billion range and much of that damage was uninsured and
backed up by the Federal Government. So we are of the opinion--
and in the event that the insurance market had to pay for a
catastrophe to the magnitude of $60 to $85 billion, it would
put some companies out of business and they would be unable to
pay claims for other types of coverage. So we think that a
public/private partnership or some form of Federal backstop is
required.
Mr. Gutierrez. I thank all of the witnesses.
Chairwoman Kelly. Thank you. Chairman Simmons.
Mr. Simmons. Again, I would like to thank Chairwoman Kelly
and Ranking Member Gutierrez for inviting our subcommittee to
participate in this very interesting and important hearing. The
Subcommittee on Intelligence has among its responsibilities to
oversee the Department of Homeland Security for a terrorism-
related threat, vulnerability, and risk analysis, and also the
integration, analysis, and dissemination of Homeland Security
information to public and private sector entities. And that
would be the focus of my questions. Is the insurance industry
at this point in time receiving any dissemination of terrorism
risk related reporting from the Department of Homeland
Security? If not, should they? If not, should we be focusing on
some mechanism where this new component of our government, this
new agency of our government, with this new and important
mission should be reaching out to your industry as a private
sector entity to assist in the analyses that you conduct? Any
of the witnesses can respond.
Mr. Ulrich. I can't speak for the insurance industry
because I am not part of it but we certainly make great efforts
to disseminate all the information we gather through our work
with various terrorism experts--changes in threat, what type of
attack modes to expect, and the likelihood of attack. And we do
that through seminars for all our clients and in quarterly
bulletins that we send out. So we do attempt to disseminate.
Mr. Simmons. But what are you getting from the Department
of Homeland Security, if anything? And, if not, should you be
getting something from them?
Mr. Ulrich. We do not get anything from DHS.
Mr. Simmons. Any of the other witnesses get anything from
the Department of Homeland Security?
Mr. DeBoer. Yes, sir, in the real estate industry we have
an ISAC that involves the 15 major real estate trade
associations, as well as the facility managers group from
around the country and stadium operators and so forth. We have
an ongoing relationship with the Department of Homeland
Security. We get information from them on a regular basis. In
some ways, it is almost too much information. We receive
bulletins, alerts, and so forth almost daily. We then
disseminate that information out to the industry. We send
things sometimes to hundreds of thousands of people about
certain information that comes from the Homeland Security
Department.
If I had a criticism, I might say that some of the
information is almost too general, too broad to be of any use.
Some of our members respond--and I don't want to be too
pejorative here--but almost treat it as spam in the sense that
you get so much information, what is really relevant? So our
message on this front, Mr. Chairman, is more relevance, more
timely information, more actionable information, if you will.
Mr. Simmons. Then if I could follow-up on that a little
bit. Is this information classified, unclassified, sensitive
but unclassified, official use only; what is the nature?
Mr. DeBoer. A variety of all of the above. We do have two
staff people who have received clearance, and they do get
information that would not then be disseminated outward. But
most of this information is unclassified--sensitive
information, I guess is what you would call it.
Mr. Simmons. Anybody else?
Mr. Lewis. Just to further elaborate on that. We do get a
lot of information. It is all open source information that we
get. And for the most part, we rely on outside modeling
experts, including RMS, to try to translate that information
into something that is in fact actionable that we can actually
use to support the management of the terrorist risk ourselves.
Mr. Simmons. And in the information that you receive, is
there any value in incorporating any of this into your
modeling?
Mr. Ulrich. We use information from all sources. A lot of
the experts we work with are privy to classified information.
They obviously don't turn that over to us, but it certainly
helps them to form their opinions, and then that is
incorporated into our model.
Mr. Simmons. And you said, Mr. Ulrich, on page 5 that there
are two options available to you. One is declassifying the
information, and the other is extending security clearances to
those people who do your modeling. Which do you prefer?
Mr. Ulrich. Declassifying the information. I don't know the
logistical challenge between giving everybody security
clearance and maintaining the classified nature of the data, I
don't know if that would be possible.
Mr. Simmons. And do any of your people have security
clearances?
Mr. Ulrich. Not that I am aware of.
Mr. Simmons. Thank you.
Chairwoman Kelly. Thank you. Ms. Lofgren?
Ms. Lofgren. Thank you. I am reminded that there are really
two kinds of information, at least, that can come out of the
Department of Homeland Security. One is the information that is
gathered primarily not by DHS but accumulated, analyzed, and
disseminated about threats that we learned. But the other is
something that is more ongoing. What steps can we take to
mitigate those vulnerabilities? And I think all of us saw the
newspaper articles in the last several weeks about the popcorn
factory that made it onto a list and the mule run and the flea
markets and the like. And I remember last year we had a
miniature golf course that made it on the list in my district.
And although people teased about that, we recently had a
briefing on it and obviously it was classified so I will not
discuss that briefing at all. But I will say as a general
matter, that there are really two things, and I think we have
seriously mishandled this. One is the critical infrastructure
of the United States and the other is just the National Asset
Database, basically a dump truck that lists every supermarket,
lists every check cashing office or the like, and the two are
not the same. As I listened to you, Mr. Ulrich, it seems to me
that you may have actually, and this is a question not a
statement, gotten farther towards mapping the critical
infrastructure of the United States than the Department of
Homeland Security. Can you really let us know in a general way
whether you have mapped out, for example, the cyber issues and
the utility issues and the like that would make up the critical
infrastructure of the United States?
Mr. Ulrich. Yes, well, we have a very different target list
in our model. We have a very small list, in fact it is only
about 3,800 targets in the whole country, so I hope we don't
have petting zoos and miniature golf courses on ours.
Ms. Lofgren. Correct.
Mr. Ulrich. We are much more focused on targets of extreme
high value or dense population. So we have gone through that,
and we continue to go through that, and that is the type of
thing we look through attacks around the world to see what are
the trends. The Madrid bombing was a great example of--it was
very successful so you expect to see that kind of thing again.
So we prioritized train stations and subway stations. And, sure
enough, you saw that attack occur again in London. So that is
the way we use that information to prioritize.
Ms. Lofgren. This is proprietary but I wonder have you
shared this with the Department of Homeland Security? Maybe we
could get some help from you.
Mr. Ulrich. We would be happy to. We don't publish it
because our model is essentially a terrorism optimization
model.
Ms. Lofgren. Right.
Mr. Ulrich. It tells the terrorists where to go attack but
we would be happy to work with you on that.
Ms. Lofgren. Well, I may follow-up with you if I could on
that. I want to talk a little bit about cyber security. A
number of years ago when cyber was still in the White House,
there was a national strategy to secure cyberspace. And some
have criticized that it is not being ambitious enough but the
truth is here we are it is 2006, towards the end, we haven't
implemented the strategy. There is really nobody in charge at
the Department of Homeland Security. With a strong bipartisan
effort a few years ago, we pushed to get an assistant secretary
for cyber security so somebody would be paying attention. That
position has never been filled. It is over a year that it has
been empty. And so we really haven't done anything on cyber,
and I continue to believe--I represent Silicon Valley, we have
some very substantial vulnerabilities. And certainly industries
that are outside of the high-tech space have recently contacted
me very concerned of the vulnerabilities that exist. Is that
something that you have taken a look at in terms of our cyber
vulnerabilities and is it something that--any of you if you
could answer--that you might be able to move us forward on
through an insurance mechanism?
Mr. Ulrich. Well, the short answer is we haven't looked at
it, not from a lack of interest but it definitely does not fit
into the mold, the Al Qaeda desired attack is something where
there is massive destruction of property and human casualties.
Ms. Lofgren. Well, you could destroy lots of property with
it.
Mr. Ulrich. Right, it is in a very different way. And we
have talked to experts about it. There is a question of whether
the skills are there.
Ms. Lofgren. They are for sale.
Mr. Ulrich. And certainly their funding terrorist
activities through petty theft of credit cards and all. So
there is a lot of that going on but we have not pursued further
the potential for cyber terrorism.
Ms. Lofgren. I see my time has expired, Madam Chairwoman.
Chairwoman Kelly. Thank you. Ms. Jackson Lee.
Ms. Jackson Lee. Thank you very much, Madam Chairwoman, and
thank you very much for the invitation to this hearing. I would
be interested in tracking the same line of questioning. We have
spent every day since 9/11, and many of course have spent that
time before 9/11, concerned about preventative measures. There
was much second-guessing after 9/11 and one of the chief
issues, I think, of the 9/11 Commission Report was the
importance of intelligence. Might you share with me your
concepts, if you will, on modeling. What would you perceive to
be the limitations of predictive modeling for acts of
terrorism? If I could get all of you to take a stab at that
question. And what can be modeled and what can't be modeled so
that we can begin--or not begin but continue to find ways of
improving our securing intelligence and finding the right
models to work. I pose those two questions if all of you could
begin to answer that.
Mr. Fleming. The inherent problem with terrorism is its
unpredictability. We can't predict what weapon will be used,
where it will be used, or how often it will be used. As a local
government, we take steps to harden our buildings, to secure
our employees through identification badges and that type of
step to prevent as best we can a terrorist attack at a local
government. We feel that we are not particularly a target. And
RIMS being a consumer of insurance doesn't have the scientific
ability to do modeling, and we depend on Mr. Ulrich and
companies like his to provide modeling to insurance companies
to make these products available for consumers.
Ms. Jackson Lee. Mr. Ulrich, it comes to you and you have
modeling in your title, can you help us because beyond the
private sectors, the governmental sector, we are engaged in how
people can predict risk insurance but can we do that and how
should we effectively try to enhance that model?
Mr. Ulrich. Sure, well, we obviously think we can do a good
job of assessing the likelihood of different targets being
attacked, the type of weapons that will be used, and we know
the terrorists have limited resources in terms of how many
attacks they can pull off in a year. But the challenge is you
can't make any location terrorist-proof. So at the end of the
day, the money best spent is the money that catches the
terrorists before they ever get to the point where they have
built the bomb because once they have the bomb, it is tough to
stop.
Ms. Jackson Lee. Intelligence on the front end as opposed
to the back end.
Mr. Ulrich. Exactly.
Ms. Jackson Lee. Gentlemen, anyone want to comment further?
Mr. DeBoer. Well, I guess I am a little bit unqualified on
some of this but I would say that we are the consumers of the
product that is being delivered here. And we look at why this
thing can't be priced and it strikes us that it is very logical
that it can't be priced. This is a manmade threat. It is an
evolving threat. Its goal is to alter governmental policies in
the United States and the way of life here so it is constantly
changing. There are potential catastrophic losses at the top
end and that makes it difficult to model. What has been
mentioned is that as you harden some buildings, other buildings
become more open to an attack. It is certainly true, as we have
seen, where governmental facilities have been hardened,
creating greater exposure for privately owned facilities. So I
think it is very, very difficult to respond to your question in
a way that would make this modeling work when I think a lot of
us believe on its face it can't.
Ms. Jackson Lee. So can you give your cities and counties
any comfort in their determinations on insurance, what they
should do?
Mr. DeBoer. Well, what we can do as far as building owners
is take steps to inform ourselves as to what the current mode
of attack might be. We can take steps to mitigate against those
risks that we know about. And we can share information with our
colleagues around the country as to what we are seeing in our
locations that might increase exposure.
Ms. Jackson Lee. Thank you.
Mr. Lewis. If I may follow-up on that.
Ms. Jackson Lee. Yes, thank you.
Mr. Lewis. In terms of what we feel comfortable modeling
today, given the technology of RMS and others, would be the
severity of a conventional terrorism attack at a specific
location. We feel that we can understand, given an attack takes
place at a certain building, what the loss could be. We do not
feel comfortable that we can in any way model the frequency or
likelihood of an attack in general, the attack mode, or where
that attack could take place. Moreover, for an attack using
weapons involving nuclear, biological, chemical, or
radiological weapons, we do not feel comfortable that we can
fully gauge the severity of that attack or what the
ramifications would be for the clean-up after that attack. If
one goes back to the anthrax attacks a few years ago, the
length of time it took to identify the source, identify what
was involved in the clean-up, for that scale, if one can
imagine on a broader scale, it is very difficult for someone to
get their arms around, what the true magnitude of those losses
could be. In contrast, for hurricanes or earthquakes, we have
hundreds of years of actual events and thousands of years of
data to support the information that is coming out of the
modeling to give us some comfort that what we are seeing in
terms of modeled output actually can be corroborated with
history. And there is no clearer view of the difficulty than if
you look again at the reinsurance markets, who have every
incentive that if you can price this and if you can quantify
it, that they would actually trade on that. And there is
virtually no market there. That is the best indication of the
lack of comfort in the ability to model this risk.
Chairwoman Kelly. Thank you, very much.
Ms. Jackson Lee. Thank you, very much.
Chairwoman Kelly. Mr. Cleaver.
Mr. Cleaver. Thank you, Madam Chairwoman. All of you agreed
earlier about the inevitability of another terrorist attack. I
would like to get a similar response on your belief that we
will have another killer hurricane?
Mr. Fleming. I think that is inevitable.
Mr. Ulrich. Guaranteed.
Mr. DeBoer. I would estimate that it will probably happen.
Mr. Lewis. I think in responding to that, if one looks at
the history in the United States and goes back to prior events,
you can go back to the hurricane in Miami in 1926, and if you
adjusted for property values and exposures that exist there
today, it would be well in excess of the losses that we
incurred for Katrina. So with all the build-up in property
values along the coastline today and the fact that we do have a
lot of hurricane activity, it is inevitable that we will have
more hurricanes.
Mr. Cleaver. Then it would seem to me that what happened on
the Gulf Coast should provide some analysis of our ability to
respond to another terrorist attack. And based on what happened
down in the Gulf Coast and the problems that citizens are
having even today, including Members of Congress who lost their
homes, should the American public believe that in the event of
another terrorist attack, or if the terrorists are able to
create hurricanes, what should the American public expect from
the insurance industry with the problems that we are having
even at this very hour with insurance companies.
Mr. Lewis. Let me respond. I think with respect to
hurricanes, I think we feel like we understand with some degree
of uncertainty what the risk of the hurricane threat is, and we
try to make sure that we respond to our policyholders very
quickly to pay those claims. I think what you are hearing today
is that there is a real challenge when it comes to the threat
of terrorism because we do not feel that we can fully
understand what that risk is and what would be involved in
responding. And we think to come up with a solution that
provides the best response for everybody, for policyholders,
for taxpayers, requires a partnership between the private
industry and the Federal Government to provide that mechanism
so that after an event, if it ever happens, there is that
immediate response.
Mr. Cleaver. But you are saying we do know what the risks
are with the hurricanes. In spite of the fact that we have that
knowledge, we still have not been able to respond adequately to
thousands of people in that region. And if you are saying we
don't understand the full risk of terrorism, which led me to
assume that you were saying we do understand it with
hurricanes, then can we expect that the response would be
significantly better with a terrorist activity than what has
happened in the Gulf region?
Mr. Lewis. I think if you look at the Gulf, the insurance
industry has tried to respond very quickly to our policyholders
in that area. I think in terms of the broader threat of natural
disasters, there are things that can be done, enforcement of
building codes, making sure there is rate adequacy on those
underlying policies, education uncovered for individuals. There
are a number of things that can improve that, but I think it is
a unique challenge when it comes to the threat of terrorism.
Mr. Lewis. Mr. DeBoer?
Mr. DeBoer. As far as the insurance responding to
terrorism, 9/11 obviously was a tragedy from every perspective
but one thing that was clear was that the insurance industry
stepped up to the plate and paid those losses that came due.
The reason they did that was because everybody who carried
property and casualty insurance at that time implicitly had
terrorism insurance. So they had insurance. When you ask what
would be the result of a terrorist attack, I think the question
is would there be terrorism insurance available to be
purchased? What we are suggesting is that if this Federal
program goes away and another program is not put in its place,
the insurance industry is not going to be capable and will not
have the capacity to offer that product. Therefore, if another
9/11 attack occurs and people do not have insurance, there
won't be anyone to pay those losses other than the Federal
Government, to the extent that the Federal Government pays
them. And that is the big difference.
Now, I don't know down in the Gulf, I think a lot of--there
may be a lot of uninsured activity down there and maybe that
is--
Mr. Cleaver. Well, no, actually--
Chairwoman Kelly. Mr. Cleaver, will you sum up, please?
Mr. Cleaver. Thank you very kindly. I yield back the
balance of my time.
Chairwoman Kelly. There isn't any left. Thank you. Mr.
Crowley?
Mr. Crowley. I thank the chairwoman and the chairman for
holding this committee, as I mentioned earlier. And I want to
thank our witnesses as well because I think you have brought to
light many of the concerns of many of the members here in the
committee, both in the Department of Homeland Security
community and maybe more particularly the Committee on
Financial Services. And I have been disturbed over the year
about some of the comments coming from this Administration in
regards to terrorism backstop insurance. And what causes me the
greatest concern is that I believe we are still at incredible
risk of attack. And I also believe that what gives our economy
its greatest strength is that it is viewed worldwide and here
at home, that it has the full faith and backing of the U.S.
Government. Who doesn't believe that if we were attacked in
some catastrophic way, the Federal Government wouldn't step in
in some way, any way, it is in the interest of the Federal
Government to create, I believe, this backstop provision. If
there is a cataclysmic event, who else but the Federal
Government can actually step in and provide the real insurance
that is needed to give this economy the stability that it
needs. Mr. DeBoer, if you could, I want to ask you very
specifically about the folks, the clients that you represent.
From their perspective, one of your members, just take us
briefly through the process of how they would determine whether
or not they would go forward with a project. What role does the
availability of insurance play in that decision? Does it come
into play at the beginning, the middle, or the end? Are there
ways to get around a lack of capacity that can allow
development to go forward or is it more likely that we would
see a halt to development in the absence of terrorism risk
insurance?
Mr. DeBoer. I appreciate the question. It really does go to
the heart of this. Our view is that if there is not a program,
there will not be the capacity for the product. If there is not
a product, you can't finance, you can't develop, and you can't
transfer large-scale real estate. Now the heart of your
question depends on whether you are talking about developing a
new project or buying or selling an existing product. If you
are developing something, and it is a multi-year project, you
need financing that will get you from day one through multiple
years and multiple phases of that development. You need to have
not only financing in place but to get the financing, you need
to have insurance in place. So the individual developer would
begin by going through his financier to try and get the
financing. He would go to his insurance broker and try to
obtain enough insurance to make it through that multi-phase
development. He might have to: piece together that insurance
from multiple insurance carriers; use some from his existing
carrier; go to the standalone market to fill a piece; or go
overseas to fill a piece. And so it is all stitched together.
If it is a developer who has multiple properties, he might be
spreading that risk and spreading that insurance among his
entire portfolio and there might be insurers willing to provide
insurance because they know that not all properties are going
to be subject to a loss at any one time.
But this is an issue that comes up at the start of the
project. It is at the start of the project whether you are
developing, refinancing, financing, selling, or buying a
property. It is a critical part of doing business today. The
other thing I would say is this is not just a large city issue.
Any property--right now the CMBS market, the commercial backed
securities market, is the second largest source of financing
for commercial real estate. Loans from all types of property
across the country are put into those security pools. They have
to be rated and the providers have to look and determine
whether there is terrorism insurance on all of those loans or
the bond issuance will not receive an attractive rating. So
this is a broad-scale issue.
Mr. Crowley. I am going to ask another question, I don't
want you to answer it right away because I want to get another
question in first. But are your members able to get coverage
for nuclear, chemical, biological, or radiological risk? And
from a developer's perspective, what impact does that lack of
coverage, if you are not able to get it, what risk does that
entail for your clientele? Before you answer that though, I
don't pretend to know your knowledge of a particular site, but
what you do know of the World Trade Center site in New York
with 5 years out, we have yet to develop that property. Does
that site have particular problems, as you see it, going down
the road in terms of its redevelopment, the fact that it was
the site of a terrorist attack and the fact that it has not
moved forward in the way in which we would like to have seen it
in New York. Are there any particular problems that you foresee
going down the road? In other words, further requiring for this
particular site an extension in some way of determining risk
insurance down the road?
Mr. DeBoer. I would prefer to let the Silverstein
properties people respond directly to it except to say again
that this is a multi-year project. It needs insurance over a
long period of time to do this construction. It is also the
site that has been the subject of two terrorism attacks so
therefore its risk profile is high.
Mr. Crowley. I am sure they would appreciate the last part
of your question.
Chairwoman Kelly. Thank you, Mr. Crowley.
Mr. Crowley. Could he answer the middle question?
Chairwoman Kelly. We will let them finish.
Mr. DeBoer. Mr. Crowley, the answer to your first question
is no. On a generally available basis, you cannot get insurance
for nuclear, biological, chemical, or radiological attacks. The
way that people do it is through captives, their own captives,
and that is, to our knowledge, the only broad-scale
availability of NBCR coverage in America today. If the backstop
goes away, these captives will go away and America won't have
this kind of coverage.
Mr. Crowley. Thank you. Thank you, Madam Chairwoman.
Chairwoman Kelly. Thank you for being here. Mr. Dent, do
you have any questions for this panel?
Mr. Dent. No, I don't. Thank you.
Chairwoman Kelly. Thank you very much. We thank this panel.
The Chair notes that some members may have additional questions
for this panel, and they may wish to submit those questions in
writing. So without objection, the hearing record will remain
open for 30 days for members to submit written questions to
these witnesses and to place their responses in the record.
I want to assure this panel and other people here that this
is an issue that we have been working on--I personally have
been working on this issue ever since 9/11, and I want you to
know that I will keep working on this issue and we will revisit
this question until we get this right for all of America. So
thank you very much. This hearing is now adjourned.
[Whereupon, at 11:30 a.m., the subcommittees were
adjourned.]
A P P E N D I X
July 25, 2006