Corporations are very good at finding ways to get the government to pass their risks on to consumers. The Ex-Im Bank, government green energy subsidies, and Dodd-Frank’s "too-big-to-fail" provisions are all ways that you the taxpayer are left holding the bill for private companies who take on risks that the market does not support. Congress is about to renew yet another of these expiring corporate welfare programs this week – TRIA, the Terrorism Risk Insurance Act.
TRIA works by essentially providing government reinsurance for property insurers which cover damages from terrorist attacks. While the insurance companies continue to reap the full premiums for all of the damages they cover, the insurance companies are guaranteed that the government will pay a certain portion of their payouts in the event of a major terrorist attack. Effectively, TRIA is a bailout for insurers in the event of terrorist attack. Unfortunately, insurance companies have been willing to use the threat of terrorism to justify their continued benefits from the government, appealing to the damage from 9/11 regardless of how the insurance market has been able to adapt since those attacks.
Like many well-meaning government programs, TRIA was intended to be temporary, a crutch to help the insurance industry stabilize and find a rational way to cover large-scale destruction like that caused by the attacks on 9/11. But, as the Heritage Foundation’s David Inserra notes, insurers have largely addressed the problem; yet, over a decade after it was first passed, TRIA remains in place. Since then, as the Cato Institute’s Mark Calabria put it well, "TRIA is no more than corporate welfare wrapped up in the flag."
Insurers will, of course, argue that they can only continue to offer coverage if the government does it part by paying them with taxpayer money. We’ve seen insurance companies doing this in industry after industry – from agriculture to flood insurance to health insurance – demanding that taxpayers cover part of their risk for them and threatening that people will go uninsured if we don’t. Yet, in the absence of a government mandate, private reinsurance, states and localities can and necessarily will find ways to satisfy the demand for coverage of certain catastrophic damages.
The high cost of terrorist insurance continues to be concentrated in higher-risk areas such as New York. These markets can find their own solutions to their attack risk in the same way that the MidWest can handle tornadoes and the West Coast can handle earthquakes. There is no reason that taxpayers should continue to subsidize an insurance risk that insurers have had over a decade to adjust to. Congress should allow TRIA to expire as it was intended to do years ago.