[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




                  TREASURY'S REPORT TO CONGRESS ON THE

                  TERRORISM RISK INSURANCE ACT (TRIA)

=======================================================================

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 13, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-45



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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
JOHN CAMPBELL, California

                 Robert U. Foster, III, Staff Director


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 13, 2005................................................     1
Appendix:
    July 13, 2005................................................    43

                               WITNESSES
                        Wednesday, July 13, 2005

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

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    44
    Crowley, Hon. Joseph.........................................    45
    Gillmor, Hon. Paul E.........................................    47
    Kanjorski, Hon. Paul E.......................................    48
    Snow, Hon. John W............................................    49

              Additional Material Submitted for the Record

Frank, Hon. Barney:
    Letter from the Commercial Mortgage Securities Association...    56

 
                  TREASURY'S REPORT TO CONGRESS ON THE
                  TERRORISM RISK INSURANCE ACT (TRIA)

                              ----------                              


                        Wednesday, July 13, 2005

                  House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 2:11 p.m., in 
Room 2128, Rayburn House Office Building, Hon. Michael G. Oxley 
[chairman of the committee] presiding.
    Present: Representatives Oxley, Leach, Baker, Pryce, King, 
Royce, Kelly, Gillmor, Ryun, Shays, Fossella, Kennedy, 
Hensarling, Garrett, Barrett, Price, Davis of Kentucky, 
McHenry, Frank, Kanjorski, Waters, Maloney, Velzquez, Ackerman, 
Sherman, Meeks, Lee, Capuano, Crowley, Israel, Baca, Matheson, 
Miller of North Carolina, Scott, Davis of Alabama, Cleaver, and 
Bean.
    The Chairman. The committee will come to order. Pursuant to 
Rule 3(f)(2) of the Rules of the Committee on Financial 
Services for the 109th Congress, the Chair announces he will 
limit recognition for opening statements to the Chair and 
ranking minority member of the full committee, and the Chair 
and ranking minority member of the Subcommittee on Capital 
Markets, Insurance, and Government-sponsored Enterprises or the 
respective designees to a period not to exceed 16 minutes 
evenly divided between the majority and minority. The prepared 
statements of all members will, of course, be included in the 
record.
    The Chair is also advised that our witness today, the 
distinguished Secretary of the Treasury, needs to leave by 
4:30. The Chair now recognizes himself for an opening 
statement.
    Good afternoon, Mr. Secretary, and welcome back to the 
committee. We look forward to hearing your testimony today on 
the Treasury Department's recent report on the Terrorism Risk 
Insurance Act, or TRIA.
    This Nation suffered a series of brutal terrorist attacks 
on the morning of September 11, 2001. The massive destruction 
wrought by the enemies of America, including the total 
incineration of the World Trade Center, caused tens of billions 
of dollars in damages, and of course, killed over 3,000 people. 
No one knew how our economy would react in the immediate 
aftermath of these attacks. The uncertainty that was felt in 
the wake of that tragic day greatly impacted consumers in the 
insurance marketplace. Insurers paid out record claims in 
excess of $35 billion, but industry surpluses were drained, 
reinsurers withdrew, consumers couldn't get new policies with 
terrorism coverage, and construction projects with real jobs 
were being put on hold.
    President Bush immediately called on the Congress to pass 
terrorism insurance legislation to protect consumers and our 
economy. This committee rose to the challenge, and within 3 
months of 9/11, we developed and passed in the House the 
initial version of TRIA that eventually became law.
    TRIA established a public-private partnership with a 
temporary backstop to protect against future catastrophic 
terrorist attacks through December 31, 2005.
    Reviewing the Treasury's report on TRIA, it is clear that 
the U.S. economy has recovered quite well from the attacks of 
2001. However, TRIA has not encouraged private insurance to 
return to the U.S. market. In fact, TRIA may be hindering the 
development of innovative private sector approaches to 
providing terrorism insurance. TRIA was constructed as a 
temporary program, and a simple extension to the current 
program could actually be detrimental to the Nation's long-term 
economic health. I agree with the Treasury's assessment that we 
need a new revamped terrorism program. We need a terrorism 
program that will encourage the growth of private sector 
capacity, provide for greater taxpayer protection, and reduce 
the role of the Federal subsidy over time.
    This committee has spent the last 3 years studying 
terrorism insurance and the need for an effective long-term 
solution. We have held hearings and roundtables, ordered 
numerous GAO reports, reviewed countless studies, and met with 
key marketplace regulators, consumer groups, and industry 
representatives. We know what needs to be done and have a good 
idea how to do it. My hope is that we can overcome partisan 
rhetoric to do this in a manner that is pro-consumer, pro-
taxpayer, and pro-national security.
    I look forward to hearing the Secretary's analysis of the 
Treasury report and on working together on a revamped terrorism 
insurance program that will meet the goals in the 
Administration's letter. I retain the balance of my time, and 
now yield to the gentleman from Massachusetts, the ranking 
member.
    Mr. Frank. Thank you, Mr. Chairman. I appreciate your 
calling this hearing and I appreciate the Secretary's diligence 
here. To me, the key point comes from the Secretary's 
testimony; and he says in that testimony--and I know the 
Administration has a somewhat mixed view on this, but this is a 
flat statement: ``While the immediate effect of the removal of 
the TRIA subsidy is likely to be less terrorism insurance and 
higher prices, we expect that, over time, the private market 
will develop additional terrorism insurance capacity.''
    I do not think it is reasonable for us to allow a situation 
in which we will see, quote, from the Secretary, ``less 
terrorism insurance and higher prices''. There are specific 
proposals for change that we are prepared to consider, 
obviously. You, Mr. Chairman, when the original proposal came 
forward, made some changes. The level of the co-payments, the 
deductible, all of those are legitimate to talk about. But I 
think it is clear from what the Secretary has said that a 
failure to go forward with this program now would be a grave 
error.
    It is also important that we move quickly. I think it is 
important to note that in the minds of many of us, the main 
beneficiaries of this are not the insurance companies but the 
insureds. The problem here, I think, frankly, is that a lot of 
insurance companies will find other things to do. But 
particularly in some of our bigger cities, particularly where 
we are talking about the construction of large buildings, the 
existence of terrorism insurance is important. I will be 
putting into the record, and I would ask unanimous consent to 
do that now, a letter from the Commercial Mortgage Securities 
Association.
    The Chairman. Without objection.
    Mr. Frank. In the letter they talk about the devastating 
effect the absence of terrorism insurance would have on them. 
And they note that a number of pension funds have bought these 
securities and would be negatively affected.
    It is also the case of what we are talking about here is 
the end users, the builders, and that is the reason why we have 
to move quickly. You cannot, if you are planning to build a 
large building, wait until the expiration date. We need people 
to be given the assurance that this program will continue. And 
it is entirely legitimate to consider whether or not there 
should be changes. But as I said, I take the Secretary's 
statement as an indication that at least for the next few 
years--we can talk about what goes on after that--we need to 
continue this program. And we need to make that decision very 
promptly so that the people who are contemplating building can 
go forward.
    And just two other policy points. The Secretary says, and I 
agree with this, that the macro economic effects are not great, 
but micro economic effects are very important. This does not 
affect the whole country equally. There are some parts of the 
country, as we recognize with our formulas, that are more 
vulnerable to terrorism than others. There are some parts of 
the country that will be asked to pay a greater price if there 
were to be no Federal terrorism insurance. And I do not want to 
see a burden put on those parts of the country which are more 
vulnerable to terrorism attacks as we anticipate than others to 
see that insurance there goes much higher for things that are 
not their fault.
    When we are talking about many of the risks against which 
we ask them to insure, we are talking about risks that we can 
ask them to control. But nobody building an office building can 
do anything about terrorism. This is legitimately a Federal 
responsibility. And since the deterrence of terrorism is a 
Federal responsibility, it makes sense to have the insurance be 
a part of it.
    Finally, I just would note that along with the other 
members on our side who have been very active in this, we have 
urged that group life be included. And to have terrorism risk 
insurance that covers buildings and not life would I think be 
the kind of committee equivalent of the old neutron bomb which 
killed people and left buildings standing. We don't want to do 
the reverse of that and compensate for buildings and ignore 
human lives. As a matter of fact, this Congress recognized the 
problem there when we passed the program which was well 
administered by Mr. Feinberg to provide some compensation to 
people. And there were ways in which we could change it. But it 
was very important, and it is particularly important for the 
economic development and health of many of our larger cities 
that we go forward with this program and that we go forward 
with it properly.
    I would reserve the balance of my time for Mr. Kanjorski.
    The Chairman. The gentleman yields back. The gentleman from 
Louisiana, Mr. Baker.
    Mr. Baker. I thank the Chairman. We are indeed in difficult 
days. As we consider the aftermath of the attacks in London, it 
is clear that the President's leadership in Iraq and pursuing 
terrorists of every stripe is indeed the right action to take 
because we know for certainty that at some point they will 
return.
    What is not clear is how we protect taxpayer interest while 
balancing the necessity to ensure our economic system functions 
without disruptive interference as a result of a physical 
assault on our property and lives. This is the difficult 
balancing act: preserving taxpayer money while not giving it 
away to businesses whose profit is based on the taking of risk 
and, at the same time, ensuring that when the surpluses are 
exhausted and the system can no longer function that the 
Federal Government steps in at that point to act as a bridge, 
not as a guarantor of profit, but to ensure the economic 
function continues without interruption.
    We cannot let the terrorists win twice. We know for certain 
they will come again unless we are successful in the near term 
in eradicating these evil-minded individuals; they are 
committed to destroy any free enterprise system they can attack 
and escape into the dark night.
    I think the report is an essential and critical overview of 
the status of the industry as it is now structured, and I have 
found much of its content to be very helpful in reaching a 
better understanding. What is required now is a creative 
solution, one which calls for balancing protection of taxpayers 
with the backstop being very far afield where industry 
resources are deployed and made the most effective utilization, 
and where I can go to my rotary club in my hometown and say to 
my taxpayers your money was not put at risk without good 
reason. And, when the industry returns to profitability, we 
will get your money back. It will require creative thinking and 
a new solution. I do not believe we now have that creative 
solution within our grasp. I am pleased that the Secretary 
would come here today and give us an explanation as to their 
findings, and I hope that today marks the beginning of a new 
effort to determine what that creative solution should look 
like, and that we can, within a timely and responsible manner, 
develop legislation for this committee to consider.
    Mr. Chairman, I look forward to continuing to work at your 
direction and with those who are interested in this important 
matter, because we cannot turn our back on the consequences of 
another unbridled assault on the American economic system and 
have the Congress stand by with its hands in its pockets. We 
have got to find a way to get this fixed. Thank you, Mr. 
Chairman. I yield back.
    The Chairman. The gentleman yields back. The gentleman from 
Pennsylvania, Mr. Kanjorski.
    Mr. Kanjorski. Thank you, Mr. Chairman. I am pleased that 
we are finally meeting this year to examine the need to extend 
the Terrorism Risk Insurance Act. This law is critical to 
protecting our economic security.
    In the wake of the 2001 terrorist attacks, reinsurers, 
unfortunately, curtailed the supply of terrorism reinsurance, 
and insurers began to exclude such coverage from policies. 
Eventually we belatedly approved the Terrorism Risk Insurance 
Act to address these pressing problems.
    Our efforts to address this predicament appeared to have 
worked. After all, the Treasury Department's recent study on 
the law found that the program has helped to stabilize our 
insurance markets. Several other studies have also determined 
that TRIA has worked to increase the availability of terrorism 
risk insurance and advance economic development projects.
    Last year, we were also able to reach an agreement in the 
Financial Services Committee to extend TRIA for 2 years and to 
modestly expand its coverage with group life insurance. 
Unfortunately, our bipartisan efforts fell short of their goal 
and that bill did not become law. Nevertheless, I continue to 
believe that we need to move aggressively now to extend this 
economic stabilization. Our failure to reach quick agreement on 
this important issue, according to Treasury's TRIA report, 
would likely result in less terrorism insurance, higher prices, 
and lower policyholder takeout.
    A recent report by the RAND Corporation also found that 
TRIA is needed, but because of its gaps it is not robust enough 
to protect against evolving threats. Another report by the 
Organization of Economic Cooperation and Development found that 
private markets are still unable to comprehensively cover the 
large losses that could result from terrorist attacks.
    Despite the Administration's preference against extending 
TRIA in its current form, last week's terrorist attacks in 
London highlight the genuine need for us to do so. Terrorism is 
unpredictable. Many others, including regulators, trade 
associations, insurance risk experts, and commercial mortgage 
investors have also called upon the Congress to act 
expeditiously in these matters in order to prevent short-term 
market disruptions. We need to heed their wise advice.
    In debating any plan to extend TRIA, we ought to work to 
incorporate group life insurance. These products, after all, 
have characteristics similar to commercial property and 
casualty insurance in that there is often an excessive 
concentration of risk within a small geographic area.
    Today, I also hope that Secretary Snow will expand upon the 
need for the reasonable legal reforms the Administration is 
requesting in any TRIA extension. I am very concerned that such 
a posture could once again stall legislative efforts as it 
delayed consideration of the original law.
    I should also point out that, to the best of my account, we 
have six legislative weeks left in this term. And since we have 
had this law in effect for almost 2-1/2 years without a 
comprehensive program better styled to meet the needs and 
suggestions of the Administration, I am leery of the fact that, 
within the next 6 weeks, such a comprehensive change could 
adequately be made.
    It would be most unfortunate, in my opinion, that we lolly 
dolly around over the next 6 weeks and then realize that we are 
not going to have an extension of TRIA and we are just going to 
allow it to lapse, to the like of some elements of our society, 
but I think detrimentally to most elements of our society. So I 
look forward, Mr. Chairman, recognizing that time is of the 
essence, to move quickly. This is not a Democratic or 
Republican issue, if I may say to the Secretary, Mr. Secretary, 
I am a Democrat and I represent a working district. My 
telephone has not been ringing off the hook on this issue. The 
people I am talking to are commercial developers, investors, 
insurance companies, and people that generally are associated 
with your side of the aisle, if I may, sir. But, I assure you 
that in my position, and I think I speak rather broadly for the 
Democratic Caucus, that we see the need to get this done.
    This, again, is not a Democratic issue and it is not a 
Republican issue. It is an American issue, it is a business 
issue, it is an economic security issue. Therefore, I look 
forward to working with you and the Administration and my 
colleagues on the other side of the aisle to get something done 
in the next six legislative weeks. Thank you.
    The Chairman. The gentleman's time has expired. The Chair 
yields the 2 minutes I had left to the gentlelady from New 
York, Ms. Kelly.
    Ms. Kelly. Thank you, Mr. Chairman.
    The recent Treasury Department report confirmed that TRIA 
lowered premiums and increased uptake rates in cities at risk 
of terror attack. However, the transmittal letter for the 
Treasury report indicated that TRIA should only be extended for 
2 years. It is an unfortunate reality that al Qaeda operatives 
and others will likely be plotting against us for many years to 
come. The recent London attacks also show that insured losses 
might not be the best indicator of changed conditions in an 
insurance market. Any change to the TRIA trigger should include 
casualty trigger so that mass casualty low property loss 
attacks cannot dry up the provision of insurance for a region 
or an industry.
    I am troubled by the Treasury Department report's assertion 
that commercial real estate is not a sector of the economy 
worthy of stimulus. According to the Department of Labor, 
construction industries will create more than 1 million new 
jobs in the next decade. According to the President, 15 billion 
in construction, which stopped after 9/11, was ultimately 
restored by TRIA. Failing to make a terrorism reinsurance 
permanently available leaves our economy, our jobs, and our 
well-being more vulnerable to the designs of the terrorists who 
hope to destroy our economic strength. I yield back.
    The Chairman. The gentlelady yields back. We now return to 
our distinguished witness and only witness today, the Secretary 
of the Treasury, John Snow. Mr. Secretary, again, welcome back 
to the committee. And please feel free to give your statement 
at any time you are comfortable.

STATEMENT OF JOHN SNOW, SECRETARY, UNITED STATES DEPARTMENT OF 
                          THE TREASURY

    Secretary Snow. Thank you very much, Mr. Chairman, Ranking 
Member Frank, Mr. Kanjorski, Congresswoman Kelly, Chairman 
Baker, I appreciated your opening comments.
    The issue we face here, it seems to me, is getting the 
balance right, as risks are shared in a public-private 
partnership that was put in place by TRIA in the first place, 
and now we have an opportunity to see how it can be revamped to 
better serve its original purposes, which the Treasury 
Department report, of course, says were well achieved; that 
this was legislation well designed to advance an important 
public interest, stabilizing the insurance industry, helping 
the economy, and providing for coverage that otherwise wouldn't 
have been there. I think we probably would all agree there.
    The question now is, has the market advanced, as we think 
it has, to a further state of development and maturation where 
the private insurance industry can play a larger role? Where 
that sharing of the risks between the private sector and the 
taxpayers can be shifted a little bit more, somewhat more to, I 
think, as you were suggesting, Chairman Baker, more to the 
private sector.
    We have seen the private sector expand and play a much more 
robust role here over the last 3 years. That is the basic 
conclusion of our report; I think it is the conclusion of the 
CBO report as well. By giving the marketplace a larger role 
here, we are confident that coverage will continue to expand, 
that we will encourage innovation, and we will encourage 
creativity. We probably all would agree that the private sector 
should do what it can do, and where it can operate well, the 
Federal Government and the taxpayer responsibility can recede. 
That is basically what we are saying here. And we have laid out 
some areas in which we think the program can be revamped, and 
can be improved. Raising the trigger point is one. Another is 
raising the deductibles, raising the co-pays some, and putting 
in place a stronger litigation environment. Those are the 
essence of the reforms that we are proposing.
    In the aggregate, what they do is build on the model that 
Congress put in place back in November of 2002, a good model, a 
model that was then intended to be temporary, a model that was 
intended to let the marketplace expand and play a larger role. 
And I think that process should be very much continued with the 
action that I hope you will take here in reforming the program, 
revamping it so that we can encourage the most creative and 
cost effective means of covering terrorism insurance. We 
recognize the need for terrorism insurance; we want to see it 
provided in a way that is most creative and most cost 
effective. And with that, Mr. Chairman, I thank you very much 
for the opportunity to appear before you.
    The Chairman. Thank you, Mr. Secretary. And we will make 
your full statement part of the record, without objection.
    [The prepared statement of Secretary Snow can be found on 
page 49 of the appendix.]
    The Chairman. Let me ask you, I notice particularly in the 
report and your testimony the desire for creating a system that 
would encourage innovation in the private sector. And I suspect 
all of us, to some degree or another, share that. What did the 
Department have in mind as to what type of innovations could 
conceivably take place in the marketplace? And the reason I ask 
that is because it was my assumption all along when we were 
working on the existing legislation, TRIA, that once the market 
was stabilized and you had this backup from the Federal 
Government, that the reinsurance industry would become much 
more active and get back into the game. Your report indicates 
quite the opposite, and I have to say that I was in error on 
that assumption. Is it not the key to this entire exercise to 
somehow figure out a way that the reinsurers, who, after all, 
insure the insurers, to somehow come back into this game? Do 
you have some thoughts on that?
    Secretary Snow. Yes, I do, Mr. Chairman. And I think you 
have put your finger really on the essence of what the report 
is dealing with.
    The Government occupies the reinsurance role here, 
primarily. That is the role that Congress gave to the Treasury. 
And while there has been some expansion of reinsurance 
particularly among smaller and medium-size insurers to cover 
their co-pays and deductibles, I don't think the market has 
developed as robustly and completely and as fully as we would 
have anticipated or hoped for. And one reason I think there is 
crowding out occurring is because of the large role, the 
subsidized role really that the Federal Government plays in the 
reinsurance world. So as we raise deductibles and co-pays and 
trigger points, I think that is naturally going to lead to the 
reemergence of a larger role for the reinsurance industry.
    The Chairman. Would it be, one of the things that we are 
wrestling with is that very issue, and obviously the committee 
will want to hear from the reinsurance industry as well as the 
primary insurance industry just to see what would bring that 
about. I can understand what you are talking about in terms of 
raising the co-payment, raising the deductibles and retention 
levels to the point where you have got a band in which the 
reinsurance folks can get into. And I guess that is what we are 
going to wrestle with over the next few weeks to try to do 
this.
    I am committed to delivering a bill to the House Floor this 
year. I think it would be the height of irresponsibility on our 
part as legislators to allow the TRIA to expire. I think the 
potential for damage to the economy is large. I think the 
President deserves a great deal of credit for his leadership on 
this issue. And if not for the President raising this to the 
highest level at the time that we passed legislation, we would 
not have passed that legislation.
    This was historic in that respect. And now that we are in 
the waning months of this Act, at least from my position as 
Chairman, I just feel enormous responsibility to move the bill 
forward. And I am not going to prejudge what it looks like; we 
will have an enormous amount of input on the part of the 
committee and a great deal of interest on the part of the 
committee. But at the end of the day, at least this Chairman is 
going to deliver a bill. And we want to work with Treasury, we 
want to work with anybody in the private sector who has some 
good ideas, but at the end of the day, we are going to mark a 
bill up, and I think that to do otherwise would be a big 
mistake from a substantive standpoint clearly.
    Let me ask you about one other issue. The approach that 
Chairman Baker insisted on, which was controversial at the 
time, which was essentially to provide that the taxpayer 
essentially be reimbursed for any losses, I think, given the 
history of this Act, was a very positive step in the right 
direction. It disarmed a lot of critics that were supportive of 
the taxpayer and the like, and I think Chairman Baker deserves 
a lot of credit for being one who really stuck to his guns on 
this and ultimately was in the legislation. And I suspect that 
to get a bill again this time we are going to have to revisit--
not revisit, but to essentially go along the same lines that we 
did before. Has the Department taken any particular position on 
that aspect of the current legislation going forward?
    Secretary Snow. Mr. Chairman, we think that the recoupment 
provisions are an important part of the framework that exists, 
and we certainly encourage the retention of those recoupment 
provisions and would look forward--let me--back to your earlier 
comment about wanting to get something done. We certainly do, 
too, and want to work with you and the committee to see that 
something happens this year in a timely way, exactly.
    The Chairman. Thank you. And I appreciate that. And I think 
the thing that the committee needs to understand is a lot of 
the criticism that went on before, and I think that the 
gentleman from Massachusetts mentioned specifically, that at 
the end of the day, this is not about the insurance companies 
or a boondoggle for the insurance companies, it is all about 
the economy and protecting against a catastrophic loss. And it 
just seems to me that, based on past experience, that 
obligation is pretty well evident.
    The Chair has exceeded its time. The gentleman from 
Massachusetts.
    Mr. Frank. Thank you, Mr. Chairman. I am very pleased and 
not surprised to hear you say that you expect that we will be 
able to have a bill. I would say, based on the functioning of 
this committee, I am confident, given our history, that we will 
be able to produce a very good bill and maybe we will even get 
it to the Floor of the House. But I don't want to get too 
optimistic about what will happen. But I do think we will get 
this consensus. And, again, we are talking here about the end 
users more than the insurance companies. And as I said, I agree 
with the Secretary that it that is not a macro-economic issue, 
but it is an important micro-economic issue for some segments 
of our economy.
    But, Mr. Secretary, I know there are some people, not 
yourself, who are just philosophically opposed to the whole 
notion of the Government being involved here except on an 
emergency basis. And they say, well, you know, after a while 
people should be able to get used to this.
    Now, I am not a great biblical scholar and I don't want to 
provoke a controversy, but I do know that the first flood of 
note happened a long time ago to Noah, and certainly floods are 
nothing new in our economy. By the logic that says we shouldn't 
extend TRIA, should we not also abolish Federal flood 
insurance?
    Secretary Snow. Well, that is not a position we are 
advancing.
    Mr. Frank. I understand that. But it does seem to me that 
the notion that we should only do it transitionally and the 
private market should be able to do it I think is rebutted to 
me by the notion of flood insurance; that there are some costs 
that are hard for a human being to avoid. Although I think we 
on this committee can take credit for a rationalization of the 
flood insurance program the Chairman and I insisted on and we 
had a good bipartisan effort and did our best to make it less 
burdensome, but it does seem to me that it is not new to say 
that there are some risks beyond human control, beyond our own 
control that should be dealt with and I appreciate that.
    I do agree we should be dealing with the questions of the 
co-pays and the deductibility. I have to say to many of us the 
important thing to do is to get this in place so that the 
economy can go forward. If we have this kind of terrorism 
attack, if we do have that kind of disaster, frankly, the level 
of the co-payment I don't think, is going to be our major 
concern. In other words, I think the most important thing to do 
is to get this enacted in a reasonable way so it does not 
become a hindrance to economic development in the big cities 
and to the other kinds of things that we are doing.
    But I do have one question, on your statement. You do state 
the Administration supports reasonable performance to make sure 
that injured plaintiffs can recover against negligent 
defendants. And I guess no Administration statement or policy 
on almost any issue would be complete without a denunciation of 
``unscrupulous trial lawyers''. I think unscrupulous trial 
lawyers is one word in this.
    Now, I hope that is not being made a condition precedent to 
passing the legislation. For one thing, we don't have 
jurisdiction over it. And I know there are broader issues. I 
don't think we want to let the tail wag the dog. I mean, 
whatever debates people have about the tort system, I don't 
think you say that this is the way that you deal with the whole 
thing.
    So if this committee were to come forward in the bipartisan 
way we have often operated with an appropriately revised 
version of TRIA, does that mean, unless there is a considerable 
rewriting of the tort system in other committees, that this 
doesn't go forward?
    Secretary Snow. Mr. Frank, Congressman Frank, we hope that 
the committee, and the Judiciary Committee as well, could do as 
much as possible to revamp it in ways that strengthen the 
program. So we want to work with you to do as much as possible.
    Mr. Frank. And this is the obvious, but I think we ought to 
make it clear. To date, the cost to the taxpayer of this 
program has been what?
    Secretary Snow. We have not had any incidents under the 
terms of TRIA.
    Mr. Frank. So zero.
    Secretary Snow. Zero.
    Mr. Frank. And that is the point. The main goal here is to 
deal with this, to try, to the extent that we can, to 
neutralize the threat that terrorism poses to important 
segments of our economy, not to the overall economy. But I 
think that is what we ought to be clear about. And that is why, 
this is not some favor we are doing the insurance industry, 
this is an effort to prevent this threat of terrorism from 
paralyzing important segments of the economy.
    I have one last question. And I mean this quite seriously. 
A lot of this has to do with the ability of the reinsurance 
industry to step up. These have not been the best of times for 
the reinsurance industry these days. Some of them seem to me to 
be distracted by some other factors. Are they well prepared at 
this point to make major efforts? I mean, there is some turmoil 
now going on in the reinsurance industry that we read about.
    Secretary Snow. Congressman, I think that there is more 
room for them to do more. You referenced theology earlier. I 
don't view this as an issue of theology, really, I view it in I 
think the same way you and the chairman do and others. This is 
a matter of taking a good Federal Government program that has 
worked well, and looking at it and seeing if we can make it 
work better. And I think, until we give the market some more 
room to operate, we aren't going to know whether it can do 
more. That is--
    Mr. Frank. But we do go forward with the program, is your 
general--
    Secretary Snow. Yes, with the revisions we have suggested.
    Mr. Frank. Thank you.
    The Chairman. The gentleman's time has expired. The 
gentleman from Louisiana, Mr. Baker.
    Mr. Baker. I thank the Chairman. With regard to the flood 
insurance program, just for the record's accuracy, Mr. 
Secretary, isn't it true that it is a premium funded program, 
and every dollar paid out over time has been repaid from 
premium flow plus interest when a credit was extended and when 
the funds were deficient? And if we could model a reinsurance 
program that would ensure the taxpayers that every nickel would 
be paid back plus interest, this bill would probably get out of 
committee a lot quicker if we had those kind of guarantees. And 
I think, at least from my own perspective, one of the concerns 
is writing a $10 billion check to the industry when they have a 
$10 billion profit. In my slow--folks like me kind of figuring 
out that maybe the taxpayers have given insurance executives a 
little bump when they perhaps weren't entitled to it.
    Now, I have a few concerns about information in the report, 
myself. For example, it appears that there has been more 
consolidation in the reinsurance industry rather than growth, 
which leads to some concern; that the trigger levels 
recommended may be a bit high, particularly in rural or a small 
community where you would have a $500 million event where you 
could probably buy most of Louisiana for that. And, if you did, 
you would take out most of my small insurance operators, which 
I don't think is the intended consequence.
    So there has got to be the screens through which this 
triggering device sit, as distinguished from a New York City 
event which could easily exceed the triggers, versus 
communities which could be significantly dissipated and not get 
close.
    We created this remedy out of whole cloth for the patient 
we had at the time. What has now happened is the suit is 
sagging a little bit in a few places and we need to do some 
alterations. For example, I think the repayment provisions 
which the chairman was so kind to make reference to could 
easily be strengthened and give assurances to those worried 
about taxpayer position that we could absolutely guarantee 
repayment. What is now contained in the bill is a possibility 
of repayment should the Secretary decide to assess premiums 
that are capped in a certain way over a certain period of time. 
A lot of wheels and spinners. I helped write that, and I think 
it could be made a lot better.
    The thing that I stumbled across and I needed to get an 
explanation from you, Mr. Secretary, about that I don't know 
exactly how it fits in the overall view of the Department, but 
this is the language: Given the small size of nonresidential 
and commercial office construction, stimulating this sector 
would be neither effected or warranted. What does that mean? 
Does that mean that Treasury has reached the conclusion that 
commercial property market would remain healthy without a TRIA?
    Secretary Snow. No. What that is a reference to is that 
TRIA does not seem to be directly linked to the performance of 
that market sector. Even with TRIA, you know, the market sector 
has not come back anywhere close to the peak. And even with the 
good recovery that we have had over the last couple of years, 
the nonresidential construction industry has lagged. So in the 
presence of strong economic recovery and TRIA coverage, we have 
not seen a response there that, while it has grown some 3 or 4 
percent, it is not anywhere close to where it was before. That 
is the only point we were making.
    Mr. Baker. Well, let me follow up. If we were to proffer a 
proposal which had significant guarantee of taxpayer repayment, 
some modification of the triggering mechanisms as outlined in 
the report, maybe some creative retention system that could be 
altered from the original proposal, wouldn't we be getting 
pretty close, given the view that something needs to be done 
but the current plan is not going to be reauthorized as it is, 
it is not a responsible remedy to the problem as now 
identified? And there is great interest, I take it, from the 
Treasury in moving forward, in getting resolution on this 
before the end of the calendar year. Is that fair?
    Secretary Snow. That is absolutely true.
    Mr. Baker. Thank you, Mr. Secretary.
    Secretary Snow. And we would look forward, Mr. Chairman, to 
working with you on those ideas and reforms that you suggested.
    Mr. Baker. I yield back.
    The Chairman. The gentleman yields back. The gentleman from 
Pennsylvania, Mr. Kanjorski.
    Mr. Kanjorski. I am not sure, Mr. Secretary, what we are 
talking about. Do you see a lapse in the reinsurance business 
coming into the field? I see that the Reinsurance Association 
of America has indicated that private reinsurance market is 
currently only providing $4 to $6 billion of terrorism 
reinsurance capacity as compared to about $100 billion under 
TRIA. That is 4 to 6 percent of the field that is being covered 
by the private insurance industry. Is there a reason that you 
think that TRIA may be retarding that development?
    Secretary Snow. Well, I do, Congressman. TRIA really has 
the Federal Government occupying the reinsurance space. It has 
put the Treasury Department in the position of being a 
reinsurer and basically subsidizing the reinsurance costs. So 
that has had, I think, some impediment, some impeding effect on 
the reinsurance industry. And what we are suggesting is that as 
the Treasury Department recedes some from that area, still 
keeping the backstop but recedes some, it will create more room 
for the reinsurance industry. And it is our expectation then 
that you would see the reinsurance industry gain more coverage.
    Mr. Kanjorski. So, it is your sense that part of this 
failure of the private market to fill this vacuum or void that 
exists is that they need a stimulant in some way?
    Secretary Snow. I think that, as the Government recedes, 
you will see the private sector move in more.
    Mr. Kanjorski. But in your prepared remarks, you talk about 
that happening over years. That is not going to happen between 
the time this law expires and if we don't do something.
    Secretary Snow. No. Over the next few years, if the sorts 
of changes and reformatting that we have talked about occur, I 
think you will see, we have full expectation, you would see the 
reinsurers step up more and take over more.
    Mr. Kanjorski. In the past when we have seen vacuums and 
voids created in the private market, there have been various 
theories and methodologies used to stimulate entities filling 
that vacuum or void. Maybe I could suggest, if we want to 
stimulate the reinsurance industry in America, let us have a 
Government-sponsored enterprise take over there to be a Fannie 
Mae or Freddie Mac of reinsurance. That ought to stimulate the 
hell out of them. Don't you think?
    Secretary Snow. I am not sure I would want to recommend 
going down that road.
    Mr. Kanjorski. I don't think there is any difference. I 
mean, quite frankly, we were frustrated and waited for our 
leadership to introduce a bill. Although they did not, I think 
we finally did it in March, and it has been languishing. We 
haven't had a hearing on it. We have instead been waiting for 
your report. You know, I leave it up to the experts, Mr. Baker 
and the Chairman, to fill in the voids. If they want to up the 
caps, if they want to do some nice things, that is fine.
    Now, if they want to make this an engine for tort reform, I 
think that is dead on arrival. We had that experience under 
Secretary O'Neill for a year when the Administration decided 
they were going to use this legislation to do tort reform.
    I would just give my own impression. That is not a smart 
idea. If that happens, I don't think we will see a bill on the 
President's desk this year. And, quite frankly, I am not sure 
whose ox is going to get gored, but I don't suspect the Members 
on this side of the aisle are getting tremendous calls from 
these people that need terrorism reinsurance for business 
purposes.
    I would just like somebody to take the bull by the horns 
and let us get the job done. Can we expect you and your 
Department to have a piece of legislation up here redrafted in 
such form that can expect to have the President's support for 
it and that we can move it? Or are you waiting for this 
committee to draft legislation? Who is waiting for whom to do 
what as time ticks on?
    Secretary Snow. We are prepared to be of service in any way 
we can, Congressman.
    Mr. Kanjorski. Then next week we should look forward to a 
comprehensive reinsurance bill prepared by the Administration 
that some soul on the other side can introduce as the bill to 
move through Congress? Is that what you see? Just everybody is 
saying, ``Gee, we are all for it, we are all for it'', and time 
is going. Six legislative weeks remain. That is it.
    Secretary Snow. I accept that. I think the modifications we 
are suggesting are easily draftable. We would be happy to put a 
pencil to paper and work with the legislative staff who do the 
drafting; they would be better at it than we would. But we 
could certainly make an effort at it, and would certainly work 
with you and the Chairman and others to make sure that we do 
our part to meet this timetable.
    The Chairman. The gentleman's time has expired. The 
gentlelady from Ohio.
    Ms. Pryce. Thank you, Mr. Chairman. And, Mr. Secretary, 
welcome to the committee. And thank you so much for all the 
work that has gone into this.
    Let me ask you, Chairman Greenspan testified not long ago 
that he is not yet convinced that terrorism risk is insurable, 
and yet you folks at Treasury are calling for reduced Federal 
participation. I don't think that there is anybody in this room 
that would disagree that you are both gentlemen of incredible 
intellect and impeccable judgment, and how could you two feel 
so differently about this?
    Secretary Snow. Well, I am not sure we do, Congresswoman. I 
think we both recognize the private sector ought to be allowed 
to work wherever it has a reasonable chance of working. I think 
the Chairman would accept that characterization. And in the 
case of terrorist risks, I think we both accept the TRIA 
model--that there are risks of such a scale that aren't 
modelable--and of such size, that it is very difficult at the 
present time for the private insurance industry to properly 
assess the risks in order to be able to provide coverage. And 
that is the TRIA model. All we are saying is that within the 
TRIA model, we think you can move a little further in the 
direction of letting the marketplace work.
    Ms. Pryce. Well, let us talk about modeling for a minute. 
You know, you were very specific in saying that the industry 
does have big challenges in modeling, and the probability of 
loss from terrorism is very hard to get our arms around. Why is 
that so, and what is there to be done? Can we do more to 
encourage the scientific development of models? Should this be 
a part of our bill? Is there more that we can do to see this 
come to fruition, or is it just an incalculable impossibility 
at this point?
    Secretary Snow. You know, I think in dealing with terrorism 
generally, we are being forced to confront something we haven't 
known in this country well before, it is fairly new to us, and 
it is extraordinarily hard to predict. And since we haven't had 
a lot of experience with it, I am sympathetic to the problem 
the insurance industry has of trying to put in predictable 
models, models of predictable events. I think they are getting 
better at scalability; they are getting better at trying to 
figure out, if this happens, what is the overall impact.
    But no, I agree with your basic premise here, that the 
modeling isn't yet developed, and it is a question of how it 
will develop to the point that we can really assess these 
things the way you would assess other sorts of risks that 
insurance companies freely write policies for.
    Ms. Pryce. If we took NCBR out of it, would it be any 
easier if we made that a separate category?
    Secretary Snow. I think NCBR, given our limited experience 
with it in the United States, doesn't give us a framework for 
the sort of modeling that the insurance industry normally would 
do. I mean, we should be thankful that we don't have much NCBR 
experience. It is almost de minimis in this country. And we are 
going to continue to work through Homeland Security and others 
in intelligence to make sure it is de minimis. But the fact 
that it is de minimis is the other side of why we can't do the 
models to figure out how to lay out the risks more fully.
    Ms. Pryce. I mean, I am not expert by any means, but 
National Journal did a piece on what would happen if there were 
a nuclear attack between the White House and the Capitol 
building, and then laid out scenarios as to what damage--and 
certainly, I am certain it wasn't very scientific. But if they 
can get started, I know that there is the technology and the 
science available. And I just wonder if there isn't anything we 
as a Government can do to encourage this, to speed up the 
process. And you probably have already answered me, but if 
anything comes to mind, please let us know.
    Secretary Snow. I will.
    Ms. Pryce. Thank you very much, sir. I yield back.
    The Chairman. The gentlelady yields back. The gentlelady 
from New York, Ms. Maloney.
    Mrs. Maloney. Thank you very much, Mr. Chairman.
    And welcome, Secretary Snow. As one who represents New York 
City, I can tell you that, after 9/11, truly the most important 
action by Government that helped the people was TRIA. Business 
didn't move, development didn't move, nothing moved until we 
had the insurance in place. It is critically and tremendously 
important not only for New York, but I would say every city 
across this country and county. And I would just like to say, 
Mr. Secretary, that your report really makes me wonder whether 
the Administration is talking about the same Nation that I live 
in. Certainly your report is not talking to the people who run 
businesses in this country or the insurance industry or even 
your own terrorism experts.
    The Administration tells all of us to prepare for another 
attack, but you propose to take away our ability to be 
financially prepared. Your report advocates raising the level 
at which TRIA would kick in to a point at which an event 10 
times the size of September 11th would receive absolutely no 
TRIA coverage. There is not enough capital in the entire 
industry to cover an event of that size. In fact, the industry 
would be severely stressed by an event three times the size of 
9/11.
    If we as a country do not renew TRIA at a reasonable 
threshold level, terrorism insurance will simply not be 
available. You say, oh, go draft a bill, or we will have a bill 
up there. It is not having a bill here, it is whether or not it 
is workable, whether or not terrorism insurance will be 
available. And it will not be available at the threshold 
amounts in the report. That means that if we have another 
terrorist attack, God forbid, the taxpayer will bear the full 
brunt of the cost.
    I have been talking to people not only in New York, but 
across the country about the damage that they would suffer 
without TRIA, and I think that you should talk to them, also. 
For example, one of my constituents in New York, Lisa Cramer, 
is the CEO of FOJP Service Corporation which obtains insurance 
for several New York City hospitals and medical facilities that 
provide services, necessary services to literally millions of 
New Yorkers. She was planning to be here today, she wanted to 
talk to you directly, but due to the weather, the planes and 
transportation was cancelled. But she told me this morning 
that, after 9/11 and before TRIA was enacted, the property 
casualty insurance marketplace became an absolute nightmare for 
these hospitals and medical facilities. Their property 
insurance limits dropped from $8 billion to only $1 billion, 
and terrorism exclusions were added to all of the policies.
    Pre-TRIA, the only coverage for terrorism losses they could 
obtain was for $50 million and limits at a premium of $4.2 
million. With TRIA in effect, they secured property coverage 
with full terrorism protection at limits of $1.5 billion and a 
premium of $1.2 million. Without the renewal of TRIA, the 
maximum coverage they can secure for terrorism losses will be 
only $500 million, and the premiums will triple.
    That is unworkable. Premium increases of this nature are 
simply not affordable for these hospitals and, I would say, for 
any business. Moreover, even if the money could be found, the 
maximum available insurance limits of $500 million would not be 
sufficient to replace even one hospital in a terrorist attack.
    Mr. Secretary, my question is, what do you have to say to 
these hospitals and the people that they serve and what do you 
have to say to my constituents and other constituents across 
this country?
    I have here also today Rick Barne from your State. He is a 
vice president of Corporate Insurance Management, which is 
located in Alexandria, Virginia. He has a client that owns and 
leases about 40 buildings in northern Virginia to the Federal 
Government and large corporations. Some of these buildings are 
located at the Dulles Airport.
    Based on the scrutiny insurance companies give to these 
factors, without an extension of TRIA, it will be very 
difficult for this property owner to find affordable and 
adequate coverage. He may go out of business and his tenants 
may have to move.
    The Chairman. The gentlewoman's time has expired.
    Mrs. Maloney. May I just place in the record, if I could, 
Mr. Chairman, letters that I have gotten, even from your State, 
Ohio, and Virginia, Mississippi, Louisiana, from people who are 
bringing to our attention the absolute necessity of reenacting 
TRIA. If I could, because I think it is very, very helpful to--
    The Chairman. Without objection.
    The Chairman. The Chair now recognizes the gentleman from 
California, Mr. Royce.
    Mr. Royce. Thank you.
    Good afternoon, Secretary Snow. It is nice to have you back 
before the committee. We have talked before about antiterror 
finance policy, which is within your jurisdiction. Given some 
recent developments, I am going to take the opportunity, if I 
could, to ask you about something we have been concerned about 
for some time, and that is the massive amount of funding that 
terrorists are receiving on a global basis. We have taken some 
action in Congress, indeed in this committee, where with the 
PATRIOT Act, under section 311 we said Treasury can impose 
special measures on a foreign jurisdiction such as a country or 
a financial institution, and in so doing then section 311 would 
essentially close any access to the U.S. financial system for 
anybody so designated.
    So I would like to know why Treasury has not imposed 311 
sanctions on Syria. In testimony this morning before the Senate 
Banking Committee, Under Secretary Stuart Levy strongly 
condemned Syria. I will just lay out his argument.
    He said as a serious national security threat and as a 
state sponsor of terrorism, Syria has been the object of 
targeted Treasury action for some time. Syria continues to 
meddle in Lebanon's affairs, allows the Iraqi insurgency to be 
partially funded and fueled from within its borders, and allows 
terrorist organizations and supporters to flourish there as 
well.
    At Treasury we are addressing this threat with a spectrum 
of targeted actions aimed at reversing this course.
    Well, as he says, you have issued a 311 against Syrian 
banks, against some senior Government officials where you have 
frozen their assets. But when it is clear that the terrorist 
financing is a systemic issue, as it is in Syria, why haven't 
we taken action against the entire jurisdiction? That is my 
question for you today. Why are we holding back on what would 
seem to be an obvious case for 311?
    Secretary Snow. Congressman, thanks for the support you 
have given us, and Congresswoman Kelly as well, over the years 
in these efforts. Syria is troublesome to us, as Under 
Secretary Levy indicated. We do have the pending 311, and the 
pendency of the 311 under the Patriot Act has produced some--
not sufficient, we are not satisfied--but some actions. We are 
talking with them now about some other things they need to do, 
including returning substantial sums of money that belonged to 
the Iraqi people. We have had some success. They have sent back 
some and we are hopeful to get more.
    Let me assure you we are far from satisfied, but they have 
taken a number of steps, and I can detail them for you at some 
other point, if Mr. Levy didn't today send you a note on it, 
that are in the right direction. Far from all, but they are in 
the right direction.
    It is a situation we are continuing to monitor. We are not 
at all happy with a lot of their conduct, let me assure you of 
that. We have had delegations of people from Treasury over in 
Damascus and are continuing to be in close touch with them. 
Maybe that is all I should say for the record right now.
    Mr. Royce. Well, I appreciate that, Secretary Snow. I think 
it is important that regimes understand that section 311 is a 
tool that can and will be used. In this particular case, if we 
do not get some relief in terms of the funding of the 
insurgency operation there or the allowing of that to be 
conducted on Syrian soil, as well as a return of the funds, I 
think--and more transparency in the process--I think it would 
be quite appropriate. So I wanted to use this forum for an 
opportunity to have a dialogue with you on that, Secretary 
Snow.
    Secretary Snow. I appreciate your doing that. Let me assure 
you, we are working this issue hard. We are not at all happy 
with Syrian behavior. We have observed financial wrongdoings on 
their part, including terrorist financing, and we intend to use 
311 for the purposes for which you created it.
    The Chairman. The gentleman's time has expired. The 
gentlewoman from California, Ms. Waters.
    Ms. Waters. Thank you very much. I am sorry I was delayed. 
We have a markup going on in Judiciary. I am delighted 
Secretary Snow is here. I know that the presentation that he 
prepared for today had to do with the terrorism risk 
reassurance program, I believe. However, I am fascinated with 
the line of questioning and discussion of my colleague from 
California.
    While he has indicated his concerns about Syria, I suppose 
I should just share with you that some of us are just as 
concerned about Iran and just as concerned about Saudi Arabia 
and just as concerned even about Pakistan, where we have 
friends. We have just lost I think--I think the number is 20, 
Congressman Frank just indicated, as we talked about what 
happened on the border between Pakistan and Afghanistan, that 
we believe that insurgents and terrorism is emanating from all 
of these areas. Some we have, I suppose, greater relationships 
with than others and think we have friendships that will 
protect us from some of these terrorist acts.
    But while we are talking about Syria, let us talk about 
Saudi Arabia and Iran and the borders of Pakistan and 
Afghanistan.
    What are we doing to ensure that these terrorist acts are 
not emanating from these areas that is creating more of these 
problems?
    If I may, just a continuation of the discussion you were 
just having with my friend from California.
    Secretary Snow. Thank you very much, Congresswoman. We are 
very much engaged with the countries, with Saudi Arabia, 
Pakistan and others, on the whole issue of terrorist financing. 
I have traveled to those countries, talked to the leaders of 
those countries, the Finance Ministers, the Prime Ministers, 
the ruling family, about our concerns on precisely the issues 
that you have raised.
    In all of those places with whom we are engaged, we are not 
satisfied, but we are seeing progress. Saudi Arabia has put in 
much better controls over their charities. They are watching 
the money that goes through the charities. In Pakistan, they 
have put in much better rules to deal with the entities they 
call the hawallas, the money changers.
    Ms. Waters. If I may interrupt you for just a moment, do we 
know the members of the royal family who are directly involved 
in funding some of the so-called charities? Do we have that 
database put together yet? Because much of the money coming 
from there and to the madrassas are coming from members of the 
royal family. Do we know that information?
    Secretary Snow. We have some information about the sources 
of that, and have shared our knowledge, or at least our 
intimations, with the Saudi leaders; and the Saudi leaders have 
taken a number of steps against those people.
    So this is a continuing effort on our part. We have people 
located right now as part of this effort in Saudi Arabia 
working in concert with their antiterrorist groups to identify 
and go after terrorist financing. And we are going to keep that 
up. It is very important we keep that effort up. I appreciate 
your raising it. I agree with you.
    Ms. Waters. Thank you very much. I yield back.
    The Chairman. The gentlelady yields back.
    The gentlelady from New York, Mrs. Kelly.
    Mrs. Kelly. Thank you.
    Secretary Snow, one of the questions we ought to consider 
in approaching this is why should the war on terror be treated 
differently from previous more traditional wars where the 
Government reimburses for damages inflicted by the enemy? I 
think we all realize that we are in a fight to the finish 
against a dedicated enemy.
    In World War II, the Government didn't expect private 
insurance to pay the costs associated from enemy attacks on our 
soil, and I know that we all feel that defeating terrorism is 
no less important than defeating the axis powers. Surely we 
would not expect the private insurance industry to protect us 
if we thought that we would be attacked by an enemy with an 
organized military. We really need to ask ourselves what is 
different about this situation today.
    When the TRIA law was passed in 2002, we didn't know half 
of what we know now about the enemy and its resolve. We all now 
acknowledge that the war on terror will be with us for a long 
time. It is a long-term war, and I firmly believe that we need 
a long-term solution to the terrorism insurance problem that is 
going to provide our economy with the stability to keep on 
growing and protect our citizens and their businesses from 
catastrophic loss when another major terrorist event occurs.
    According to your transmittal letter, the report was based 
in part on surveys of the insurers and policyholders that were 
developed after extensive consultations with the National 
Association of Insurance Commissioners, policyholders, the 
insurance industry, and other experts in the insurance field.
    Secretary Snow, this committee has also taken testimony 
from each of these groups, and none of them support the 
conclusions of your report. Which agencies have more expertise 
on insurance? The States, who have been regulating insurance 
for more than a century, or seven employees of the Treasury 
Department who do not administer any other insurance program?
    Your transmittal letter states that the Administration only 
supports extension of TRIA if taxpayer exposure is minimized. 
Ironically, the Federal Government, including the Treasury, 
does not include any costs associated with terrorism risk in 
the budget. As a part of your commitment to lowering taxpayer 
risk from terror, will you begin submitting a reserve request 
for potential terrorism losses within your own agency to 
protect taxpayers?
    Isn't it unfair to expect American taxpayers to pay the 
costs associated with self-insuring the Treasury Department? 
That is the question.
    Secretary Snow. That is the question? Well, that is about 
six or seven by my count.
    Mrs. Kelly. That is okay. You can answer them.
    Secretary Snow. Let me try and give you a general response, 
because your question, really as I sense it, goes to the 
quality of the study. I think it is a good study. It is a study 
that was done in full cooperation and consultation with the 
insurance industry. They in fact helped shape the very 
questions that we presented to both the industry and to the 
users.
    Nobody here is talking about ending that backstop. What we 
are talking about is, as I have tried to indicate, is revamping 
the TRIA program in a way that it gives some more room for the 
private sector to operate.
    Congress has left open in the very TRIA legislation events 
above the $100 billion level as something they would return to 
surely, hopefully, in consultation with whatever Administration 
would be in place.
    So no, I don't think that is the issue. The issue is can we 
make some improvements in the program to give the private 
sector a somewhat larger role to play; and as long as the 
Government is playing such a large role in occupying the 
reinsurance space, it just stands to reason that the 
reinsurance industry will not be as vigorous as otherwise would 
be the case.
    So this is an effort just to get to the middle of the road 
and find a balanced solution here.
    Mrs. Kelly. Mr. Secretary, when you talk about letting the 
industry take more of a role, that is only going to be passed 
on to the consumers, whatever the costs are, and that is the 
taxpayers. So I again go to my question about how we are going 
to help the taxpayers afford terrorism insurance.
    Secretary Snow. Actually, Congresswoman, if our reforms are 
accepted, the policyholders would bear more of the obligation.
    Mrs. Kelly. Exactly my point, sir.
    Secretary Snow. You said taxpayers.
    Mrs. Kelly. The policyholders are taxpayers.
    Secretary Snow. They are not in their capacity as 
policyholders. They are taxpayers in their capacity as 
citizens. This is an effort, as I say, simply to modify the 
program in ways that give the private sector more room. I doubt 
you would disagree with me on the broad proposition that if the 
private sector can do it, we ought to allow them to do it.
    The Chairman. The gentlewoman's time has expired.
    The gentleman from California, Mr. Sherman.
    Mr. Sherman. Thank you. I would like to make just a couple 
of opening observations. One of those is that as terrible as a 
massive terrorist attack is, a natural disaster can have an 
equivalent economic impact, and I hope we are not only going to 
deal with the uninsurable or unreinsurable risks posed by 
terrorism, which are new and exciting, but that we also deal 
with the equivalent need for reinsurance or re-reinsurance by 
the Federal Government for massive disasters that are natural 
disasters. This has nothing to do with the fact that Northridge 
is in my district.
    Second, we should not be waiting to the last minute, which 
is what we always do. This law is going to expire December 
31st. If you had to predict the outcome, it would be we are 
going to extend TRIA the day before we leave town for the year.
    Now, if we do that, we will have the same costs. The 
gentlewoman from New York was saying, hey, maybe there is a 
burden to the taxpayer. If we extend TRIA today or do it at end 
of the year, it has the same costs, but it doesn't have the 
same benefits.
    Right now there are people thinking about huge projects, 
projects that would employ a lot of people, projects that might 
get somebody to wonder, well, will that be a terrorist target? 
Some of these projects aren't going forward because people are 
saying, well, of the many concerns we have, there is not going 
to be terrorism insurance.
    So every day that goes by that we don't extend does nothing 
to reduce the costs or disadvantages of extending TRIA, but 
diminishes the benefit. And the chief benefit is we want people 
building towers even larger than those that stood in southern 
New York, whether those be in Los Angeles, Chicago, or 
elsewhere. We want people to feel they can build something 
exciting and get insurance for it.
    Mr. Secretary, as I understand TRIA, and may be reflecting, 
the policyholder is not getting something for free. There is a 
premium that the Government charges. Is that either the case 
now or in the proposed changes that you would make?
    Secretary Snow. Congressman, TRIA does not require the 
insurance companies to pay a premium, but it does give the 
Treasury Department the authority to recoup some portion of the 
Federal payments in the event of an event; to do a subsequent 
assessment, I think it is 3 percent a year on policyholders 
thereafter.
    So there is a recoupment process. But you are correct that 
right now there is a subsidy that is being made available by 
the reinsurance, because Treasury is not charging anybody for 
it presently.
    Mr. Sherman. Now, we have seen what happened in London, 
which underscores what happened on September 11th. In light of 
the continuing and evolving threat, and given that the 
reinsurers are apparently not providing much terrorism 
reinsurance, are you concerned that the insurance market could 
become more dysfunctional than it was after September 11 if we 
fail to renew TRIA in some form?
    Secretary Snow. Congressman, we are clear on this one. With 
these reforms, you would have a better product and we support 
doing it.
    Mr. Sherman. And if we did nothing, could we, starting the 
beginning of next year, or perhaps starting after the beginning 
of next year when TRIA expired and there was some other 
terrorist action, huge or medium-size anywhere in the world, 
could the combination of TRIA being allowed to expire and even 
a new terrorist act--as if we have forgotten the old ones--
cause the insurance markets to become even more dysfunctional 
than they were after 9/11?
    Secretary Snow. I would urge you to adopt the reforms and 
move the legislation.
    The Chairman. Does the gentleman yield back?
    Mr. Sherman. I yield back.
    The Chairman. The gentleman from Connecticut, Mr. Shays.
    Mr. Shays. Mr. Secretary, I like you. I don't agree with 
you on this position. I am not sure where your position is, 
because it is that you don't support it but you will help us 
write a bill. I guess what I am sensing from you is you are not 
advocating that we do a bill, but if we are going to do a bill 
you wanted to help us write it. Is that what you are really 
saying?
    Secretary Snow. No. Our view is that we support the 
reforms. We support revamping the program, because we think by 
revamping it we will create better coverage. We will enlist the 
private sector in ways that are more creative and cost 
effective in covering the risks, and with the reforms we are 
for the extension.
    Mr. Shays. So the bottom line is, though, that you would 
like us to write the bill and your folks will work with us?
    Secretary Snow. We will work with you, yes.
    Mr. Shays. Fair enough. Let me ask you, it would strike me 
that a general principle would be that we would ultimately want 
to wean the insurance industry from Government guarantees, but 
that we would have them over a fairly long period of time build 
up reserves but still make policies fairly affordable.
    Is that the logic to this program? In other words, I spent 
8 years focusing on terrorism, and what I see is that attacks 
are more likely in the future, and more devastating, and the 
consequence of chemical, biological, even nuclear attacks, is 
not out of the question. So it is not like in the future there 
be less attacks, it is more likely there will be more attacks 
as I see it.
    So is the point to just have them start to build up 
reserves over time?
    Secretary Snow. That would be a piece of it. But another 
piece of it is to give the industry, which is quite innovative 
and capable, and the marketplace generally--
    Mr. Shays. I don't know how to interpret innovative. It 
seems kind of basic.
    Secretary Snow. The modeling, getting a better assessment 
of things through the modeling, seeing if financial facilities 
develop securitization and other things that offer some 
opportunity here. I am not saying they will be there, but if we 
don't create room for them, we will never know.
    Mr. Shays. Let me ask you, though, if you own an insurance 
comapny or you are managing one, running it, you are the CEO, 
without some guarantee from the Federal Government, aren't you 
playing Russian roulette with your company, because you may 
find that there is such a potential for devastation that you 
basically--your company goes under because of your unlimited 
liability?
    Secretary Snow. Congressman, insurance companies will not 
put more than X amount of their surplus in jeopardy. I agree 
with you. That is the way the insurance industry operates. What 
that means is if more than X would be put in jeopardy by 
writing a set of policies, for terrorism risk insurance or 
whatever, they won't write it.
    Mr. Shays. If policies are not written, do you think 
mortgages take place and banks are willing to--
    Mr. Snow. Remember, the TRIA structure stays in place. The 
Government under the reforms that we are talking about, the 
revamping, the backstop is still there. We are talking about 
way below the backstop trying to get more reinsurance being 
provided through the private market. So the backstop structure 
is still there.
    Mr. Shays. It just strikes me you are basically asking the 
industry to put up all their reserves.
    Secretary Snow. No, we would not. That would not be 
prudential. Far from that. In fact, the very point of study--
and your question is taking me right to the heart of the 
study--is that the insurance industry has developed 
substantially more reserves now, but there are limits on the 
amount of reserves that a well-run, prudentially run insurance 
company will make available, and that is how the insurance 
industry must function and should function.
    Mr. Shays. Let me just say, my last question is what 
happens if TRIA expires January 1st without a replacement bill? 
That is my question. And my point to you would just be that I 
know you well enough to know--and your Department--that you 
will be working with this committee, and hopefully that will 
not take place. But I will ask you, what would happen if it 
did?
    Secretary Snow. I think the best thing is to follow the 
course that you are suggesting and I am suggesting, and I think 
the Chairman is suggesting, and that is to adopt the 
suggestions and move forward with the legislation.
    Mr. Shays. Thank you, Mr. Secretary.
    Thank you, Mr. Chairman.
    The Chairman. The gentleman from New York, Mr. Meeks.
    Mr. Meeks. Thank you, Mr. Chairman.
    Mr. Secretary, I am a little bit confused. Let me just pick 
up from what was just stated. You say adopt. I have the 
confidence, as Mr. Frank indicated earlier, and Chairman Oxley, 
that we will come up with a strong bipartisan bill that is 
coming out of this committee.
    Now, you seem to say that you want us to come up with a 
piece of legislation that you have written, adopt it, and make 
it law. What if this committee comes up with some 
recommendation as to how it feels the TRIA law should be, and 
then it comes to the Administration? Will you then say we must 
then have a bill so we can have it signed by January 1, that we 
don't have the expiration of TRIA? Or will you say no, it has 
to be as we want it, as we have proposed it?
    Secretary Snow. Well, I would hope there would be a good 
dialogue. There has been a good dialogue on a lot of other 
issues with this committee on both sides, and I would hope we 
continue to have a good dialogue, good set of understandings.
    Let me assure you, Congressman, we know that you write the 
legislation, not us. And I have been asked to testify to offer 
our views on what a good outcome might be, and that is all I am 
doing, is giving you our sense of what a good outcome might be. 
But I fully understand that you are going to write the 
legislation and factor our recommendations in as you think they 
merit attention.
    Mr. Meeks. Now, in your recommendations and your testimony, 
one of the things I am trying to decipher--in questions to Ms. 
Kelly, for example--are you concerned at all about what the 
cost of terrorism insurance, the bottom-line cost for the 
policyholder is? You said they are not--she said they are 
citizens. You said it differently. But the cost that it would 
come--that the policyholder would have to get terrorism 
insurance, are you concerned about that at all?
    Secretary Snow. Absolutely. Cost and availability are the 
two things we looked at in the study. So they are both very 
important. Because if there isn't availability, there won't be 
the take-up rates that ought to occur, and if the price is too 
high, there wouldn't be the take-up rates. So availability and 
price are the two determinants of coverage.
    Mr. Meeks. You keep referring to studies you have had, but 
what I have been able to decipher, the studies and individuals 
I talked to, if we go in the direction the Administration would 
like us to go to, the cost would become prohibitive for many 
individuals, affecting--and I think this is what Mr. Sherman 
was talking about--in a lot of the markets, a lot of the 
economic development projects we currently have going on.
    We talk often that we can't let terrorists and terrorism 
win. One of the reasons why they attacked New York--and a lot 
of other major cities are focused on this--they want to go 
after us financially and our economy.
    When they talk about TRIA, we are really talking about a 
program where we should be coming together as a Nation, as 
opposed to ending it and saying, as I believe was stated, that 
the continuation of the program in its current form is likely 
to hinder the further development of the insurance market by 
crowding out innovation and capacity building.
    I don't see how that is so. I think even while we are 
working here, innovation and the markets and everyone is 
working together so that we will not allow the terrorists to 
win. We are in Iraq now, spending a whole lot of taxpayer 
dollars, when a lot of taxpayers did not want to be there in 
the beginning.
    Secretary Snow. Well, look, I agree with you on the basic 
premise as I hear it, and that is we have got to protect the 
homeland. That is the first line of defense here.
    I talked to Secretary Chertoff this morning on that very 
score. Of course, we put a lot more money into homeland 
security, and developed this comprehensive national strategy 
for homeland security. That is the first line of defense, good 
strong, homeland security initiatives, investigating terrorist 
activity, good intelligence on terrorist activity, bringing the 
whole government together to focus on it and the global 
community as well.
    Mr. Meeks. So you would agree with me--
    Mr. Snow. I agree the first line of defense is strong 
homeland security.
    Mr. Meeks. You agree it should be the priority of the 
Administration to make sure that we work and that you work 
closely with this committee to make sure that we do not allow 
TRIA to expire prior to January 1st.
    Secretary Snow. I think we ought to work to reform it in 
the way that I have suggested, because by doing that we are 
going to have a better TRIA. We are going to have a set of 
policies in place that encourage a more creative and cost-
effective means of covering terrorist risks.
    The Chairman. The gentleman's time has expired.
    The gentleman from Texas, Mr. Hensarling.
    Mr. Hensarling. Thank you, Mr. Chairman. Thank you, Mr. 
Secretary.
    I don't know if I can do it justice, but President Reagan 
once said something along the lines of one of the closest 
things to eternal life on Earth is a Federal program. I, for 
one, on behalf of the taxpayers, hope I am not witnessing that 
today with TRIA. Having said that, we know all the obvious 
implications of 9/11, the tragic loss of life, the incredible 
blow to the economy, that we have done, frankly, a very good 
job under this Administration of recovering from.
    I believe that TRIA played a role in that recovery. I just 
don't want to see the taxpayers on the hook forever.
    In your written testimony you state that TRIA has been 
effective in meeting its goals of supporting the industry 
during a transitional period. So to me that is really the key 
question: What is going to constitute this transitional period? 
I, for one, don't believe that 3 years is quite enough. I don't 
know if 6 years is too much. It is kind of like Goldilocks and 
the various porridges.
    So what does the Administration believe is an ample 
transitional period?
    Secretary Snow. Well, Congressman, I share the sentiments 
you have expressed there. I think a couple of years' extension 
would help us understand better the situation. Over the weekend 
I read this recent OECD study on terrorism insurance and 
threats of terrorism in Europe, and it is a very thoughtful 
study. What they basically recommended was maximizing the role 
of the private sector, using the Government as a backstop, and 
continuing to evaluate it and not, in effect, making it a 
permanent program.
    So it seems to me a couple of years, if we had it for a 
couple more years, we would be in a position to evaluate and 
have a better sense of where to go from there. But it was not 
intended, as you know, to be a permanent program. It was 
established as a temporary program.
    Mr. Hensarling. In your written testimony you also allude 
to the progress the industry has made since the enactment of 
TRIA and its capacity to write terrorism insurance. You didn't 
really elaborate upon that in your oral testimony. Can you 
elaborate a little bit more on what improvements we have seen 
in the market?
    Secretary Snow. Yes. One, we have seen the surpluses in the 
industry have gone up quite dramatically. Of course, it is the 
surpluses that determine how much insurance they will write. 
Underwriting profits, which were negative in 2001 and 2002, 
turned positive in 2004. The capital base of these industries 
has gone up a lot because back in 2001, then 2002, the equity 
markets took a big hit. Now the equity markets are much, much 
stronger. Economic growth for the economy has been much, much 
better. Unemployment rates have come down.
    Then when you look at the industry statistics or metrics 
themselves, the take-up terrorism rate, which was in the mid-
twenties in 2002, is now over 50; 54 percent as I recall.
    The share of insurers who were pricing insurance, making it 
available with prices, has more than doubled over that period 
from some roughly 20 percent to the mid-fifties.
    Policyholder costs, that is as a share of premiums, has 
gone up from about 1.2 percent to 1.7 percent, something on 
that score. But the policyholder cost in the high-risk cities 
has come down, which is interesting.
    So overall we see a better insurance picture than we saw 
back then.
    Mr. Hensarling. I see in your testimony there has been some 
question about the Administration position on the extension. I 
see where you state that you are hoping the extension of the 
program would recognize the temporary nature of the program, 
the rapid expansion of the private market development and the 
need to significantly reduce taxpayer exposure. In the seconds 
that I have remaining, I could not agree more, Mr. Secretary.
    I yield back the balance of my time.
    The Chairman. The gentleman yields back. The gentlewoman 
from New York, Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Welcome, Mr. Secretary. Mr. Secretary, studies show that 
small businesses, even those located in high-risk cities, are 
taking up terrorism insurance at lower rates. The Treasury 
report supports this notion that as firm size increases, firms 
are more likely to have terrorism insurance. Often small 
businesses cite the high cost of policies as the reason for not 
purchasing it.
    If small businesses are unable to afford coverage, they may 
move to lower-risk areas, leaving many downtown urban centers 
devoid of the economic vibrancy that they are known for.
    On page 7 of your report, Treasury states: ``Overall our 
assessment is that the immediate effect of the removal of the 
TRIA subsidy is likely to be less terrorism insurance written 
by insurers, higher prices, and lower policyholder take-up.''
    Clearly, letting TRIA expire will not help small businesses 
secure the insurance they need. If small businesses are unable 
to secure terrorism insurance, particularly those located in 
high-risk cities like New York, what effect might this have on 
economic development in downtown urban areas?
    Secretary Snow. Congresswoman, thanks for that good 
question. Small business, of course, is at the center of our 
economy. We need to make sure small businesses continue to 
thrive. What we are saying is that with the reforms, with the 
reforms, we think that there would be more creative and lower-
cost insurance available, because the reinsurance industry, 
which is being crowded out now by the Government program, would 
come into play.
    A lot of small businesses, according to the study, even 
though it has been available under TRIA, have not taken the 
terrorism insurance, making a judgment I guess that they aren't 
at great risk; others do. That is a normal sort of market set 
of choices.
    Ms. Velazquez. Well, I have a lot of small businesses in 
New York City, especially in my district. They border Chinatown 
and they border the area of the World Trade Center. I have met 
with them. We do a lot of hearings or meetings with them. And 
that is not what they are telling us. They are telling us that 
is it is the cost that is making it impossible for them to get 
their insurance that they need.
    Secretary Snow. You are saying the cost with TRIA today?
    Ms. Velazquez. Yes.
    Secretary Snow. I think we can probably do better as we go 
forward with the modifications that we are suggesting.
    Ms. Velazquez. Sir, what will you do, or the Federal 
Government, to increase the affordability of terrorism 
insurance for small businesses?
    Secretary Snow. Oh, I would let the market work more.
    Ms. Velazquez. It is not working now, even with TRIA.
    Secretary Snow. That is the very point I am making. There 
would be more room for the market to work if we had the 
Government recede some and let the reinsurers and the insurance 
business play a bigger role here, if we in effect cut back on 
the Government role.
    Ms. Velazquez. I also want to follow up on Mr. Frank's 
question on flood insurance. The Federal Government has 
frequently interceded in insurance markets, offering the 
Federal Crop Insurance Program and the National Flood Insurance 
Program, providing deposit insurance and implementing the 
Price-Anderson Act, which then insures against nuclear 
accidents. These are just a few instances.
    Given the Administration's opposition to TRIA, does the 
Administration plan to oppose other Federal insurance programs? 
Explain to me why the justification for these programs are 
different than for that of TRIA.
    Secretary Snow. Well, Congresswoman, as I have been careful 
to try to explain, with these reforms that we are suggesting we 
will make the program stronger, and then want to urge you to 
move forward and adopt them and keep the program in place with 
these reforms.
    Ms. Velazquez. Thank you.
    The Chairman. The gentleman from North Carolina, Mr. 
McHenry.
    Mr. McHenry. Thank you, Mr. Chairman.
    Mr. Secretary, is it your goal for the Federal Government 
to be out of the insurance business, out of this entirely, and 
if so, what is your sort of game plan for that?
    Secretary Snow. Go back to the original TRIA. It was 
intended to be a temporary program to serve an important need 
for a period of time. The evidence, as indicated in our report, 
is pretty clear that TRIA has been helpful. We have seen the 
surpluses rise, we have seen coverage rise, we have seen take-
up rates rise. That is all positive.
    Now we are at the point of asking ourselves can we improve 
the program? Not eliminate it, but improve it. Because it is 
really important that we get--you weren't in when Chairman 
Baker talked about this, but get this balance right--maybe you 
were--between the sharing of the risks.
    Mr. McHenry. I was.
    Secretary Snow. The risks between taxpayers and private 
industry should be balanced. It is our view that giving private 
industry more room to operate, they can share more of the 
risks, reduce the risks on taxpayers, and actually it is our 
view they will probably get a better product over time. We want 
to keep that process going.
    Mr. McHenry. What is your time frame?
    Secretary Snow. Well, as I said, a couple of years' 
extension would seem to me to be reasonable.
    Mr. McHenry. Why not a simple extension of what we have 
now?
    Secretary Snow. Because I think we shortchange the 
taxpayers with a simple extension. We shortchange taxpayers and 
we also, frankly, shortchange the capacity of the insurance 
industry to perform at a higher level.
    Mr. McHenry. Okay. Now, in terms of in the past, certain 
States have said that you must make available--well, certain 
States, it is said that you have to make available the 
backstop. Let me rephrase this.
    Under the current TRIA program, there is a requirement that 
companies make available coverage, coupled with a Federal 
backstop, to help make coverage more affordable. What would the 
new program do in those terms?
    Secretary Snow. It would, as we are proposing it, those 
components would remain the same.
    Mr. McHenry. The exact same as we have?
    Secretary Snow. We would cut back some lines, we would 
reduce coverage on some lines, but change deductibles and 
copays. But that sort of model, framework, template, would stay 
in place.
    Mr. McHenry. Have you thought about the ramifications with 
insurance packages, where you have Workman's Comp, you have 
commercial property insurance, but when you are eliminating 
lines like automotive and general liability, that increases the 
costs in the marketplace by not having that Federal backstop.
    Have you considered the ramifications for how that 
transition is going to occur, the effects it is going to have 
on the market?
    Secretary Snow. Yes, that is the subject of the study. We 
concluded that those additional lines that you mentioned aren't 
subject to the sort of aggregation risks, like auto insurance, 
that are really not the appropriate subject for TRIA, and that 
is why we called for cutting back coverage on those lines. But 
we don't think other than that it would have a far-reaching 
effect.
    Mr. McHenry. And this is my final thought or final 
question. With what just happened with the terrorist attacks in 
London, there is a lot of concern about the soft targets, not 
just on infrastructure being targeted, but on the soft targets. 
How is this new program going to encourage take-up rates when 
it comes to especially soft targets, that sector?
    Secretary Snow. Well, I have talked to the people in 
London. Our condolences go out to them, and concern. They have 
handled it well.
    A London-size event, as devastating as it is, is not large 
relevant to the capacity of the industry to handle it.
    Mr. McHenry. But in terms of increasing the take-up rates 
when we are talking about soft targets, just generally 
speaking, aside from the events that occurred in London--
    Mr. Snow. You mean like subways? This is a subject I 
mentioned earlier, a discussion I had this morning with 
Secretary Chertoff. It is clear the terrorists are looking for 
soft targets. They are looking for the things that they think 
aren't sufficiently protected or that are hard to protect, like 
subways. And our response has to be to toughen up our security 
processes on those targets. I think that is the better way to 
get at this; it is the only way ultimately to really get at it. 
That is partly intelligence gathering, it is partly 
surveillance, it is partly more security at the facilities. It 
is a whole range of things.
    The Chairman. The gentleman's time has expired. The 
gentlelady from California, Ms. Lee.
    Ms. Lee. Thank you, Mr. Secretary, for being here today. I 
apologize for being late due to another conflicting meeting. I 
am trying to review your testimony very quickly. A couple of 
questions I have with regard to your testimony which I am not 
sure have been answered in this.
    First of all, clearly we all agree, I think, that the risk 
of terrorism is very real and we must ensure that coverage is 
available. However, I wanted to get some specific dollar 
amounts in terms of just what the taxpayer subsidies have been 
since TRIA has been in effect. I am not sure if your testimony 
gives us that dollar amount.
    What have the American taxpayers provided?
    Secretary Snow. Well, to date, fortunately there have been 
no incidents that are coverable under TRIA, so the direct 
outlays have been, as Ranking Member Frank said, zero; the 
direct outlays. But, of course, there is a potential cost that 
is there, which constitutes, in effect, a subsidy to the 
industry.
    Ms. Lee. What, though, in terms of the reinsurance, what 
are your projections though?
    Secretary Snow. I don't think we have quantified that to 
any satisfactory degree, to be honest with you.
    Ms. Lee. Just in terms of evaluating legislation, I would 
like to know what we are looking at, what your estimates are. I 
think taxpayers deserve to know that, should they have to do 
this, what they would be required to pay.
    Secretary Snow. Well, we can give you the math on that. 
That is pretty straightforward as laid out in the statutory 
framework itself. The Government is on the hook for a sizable 
amount of money over the deductibles and copays that would take 
you to the $100 billion cap. So there is a portion that would 
be retained by the industry and there is a portion that the 
Government would pay, and then there is a recoupment. I will 
send you an example that lays that out. That we know.
    What we don't know is the year-in/year-out hidden subsidy 
that the program costs. Not to any high degree.
    Ms. Lee. That will be very helpful. Some would suggest 
looking at the riot reinsurance program of the 1970's. I am not 
sure if you have had a chance to look at this. Some would say 
this is an example of how we should modify TRIA as we begin to 
reauthorize it.
    Secretary Snow. Thank you. I don't know that we have done 
that, but I will ask the staff to take a look at it.
    Ms. Lee. Thank you very much, Mr. Secretary. Thank you, Mr. 
Chairman.
    The Chairman. The gentleman from Staten Island.
    Mr. Fossella. How is that for a dramatic introduction?
    Thank you, Mr. Chairman. And thank you, Mr. Secretary, for 
coming.
    Let me just state for the record, as has been said, that 
TRIA has worked. It has been effective in stabilizing and 
allowing our economy to move forward. There are many people, I 
know, especially in New York City where I am from, of all 
shapes and sizes, all political views and ideologies, from 
``the government has no role'' to ``the government should do 
everything in life,'' who all agree, I think, that TRIA has 
served its purpose. I do think it has to be renewed in some 
way.
    You mentioned the fact that the take-up rate has almost 
doubled in the last couple of years, and I can appreciate your 
desire to try to stimulate more private sector involvement and 
minimize the exposure of the Federal Government. But how can 
you determine that take-up rate will at least continue at the 
current rate, at a minimum remain at the status quo, and not be 
adversely affected if the Government does pull out or change 
the formula or implement some of the reforms as you have 
suggested?
    Secretary Snow. Congressman, that issue is dealt with in 
the study. The market has developed well and it is our sense 
that as we give the reinsurance market, which hasn't developed 
as well, more room to operate--in other words, reduce the 
subsidy some--that the private market would play a bigger role.
    It seems to me it is hard to argue with the fact that the 
subsidy crowds out some of the reinsurance that otherwise would 
be there. So it is the conclusion of the Treasury experts who 
ran the study that we would have a larger role for the private 
sector if we reduced the subsidy somewhat. We are not 
eliminating it, of course; we are just giving the private 
sector a somewhat larger role. But we are not eliminating it in 
any way in our proposal, the backstop or the fundamental 
structure of TRIA.
    Mr. Fossella. Along the same lines, earlier you said there 
were impediments, or at least you indicated if you implement 
some of the reforms, the policy rate premiums would come down. 
Just for the record, what are those impediments that are in 
place that prevent the policy rates from coming down right now?
    Secretary Snow. Well, I am not sure the rates will come 
down if we go forward, because the rates today, of course, 
reflect the subsidy, and we are proposing to narrow the 
subsidy. But we don't think there would be any material effect 
on coverage and rates. And over time, I think as we allow the 
private sector to play a bigger role here, including the 
financial sector, that we would expect to see innovations that 
would result in better products and better pricing and better 
coverage for the marketplace.
    It is our trust in the markets, fundamentally.
    Mr. Fossella. I appreciate that as well.
    Before I yield back, I think it was said earlier, let us 
not get ourselves in a position of putting all of us at too 
much risk, and God forbid another attack occurs a year from now 
or 2 years from now and we indicate that maybe we moved too 
fast in implementing some of the reforms. I believe in the 
market myself, but I see at some point in time it is 
appropriate for the Federal Government to step in and Congress 
to step in to provide that stability to the marketplace that is 
essential.
    I yield back. Thank you, Mr. Chairman.
    The Chairman. The gentleman yields back.
    Mr. Capuano. Thank you, Mr. Chairman.
    Mr. Secretary, I actually agree with I think virtually 
every general policy statement you have made today. I totally 
agree that, if possible, in a perfect world the Government 
should have no role in private insurance, and I think that is 
what I have heard today, and that is a great thing.
    But, however, like many things I find in Congress, it is 
really not about the general policy goals that we have 
problems, it is about how we get from A to B. And I guess, just 
for general ideas, do you agree, do you believe that, God 
forbid--and I guess all of today is based on the premise that 
we may some day have another accident. If we all agree that we 
would never have another accident, we wouldn't be here today. 
So, God forbid, we have another event, a horrendous event in 
America. Do you agree that the United States Congress and the 
current Administration, probably every future Administration, 
is likely to be able or be desirous of considering Federal 
Government involvement either through reinsurance after an 
event just like we did after 9/11? Do you think that is a 
positive and a likely occurrence?
    Secretary Snow. Congressman, I think we have to continue to 
be focused on the issues of terrorism and use every means in 
our disposal to deal with it. It starts with the protection; 
the back end of it is in case a terrorist event that we don't 
want to see happen does happen. And all we are saying here is 
that, as you consider extension of TRIA, we suggest adding 
these reforms.
    Mr. Capuano. I understand. I don't want to get into word 
games with you because that is not what I want to do today. I 
happen to think that it was the right thing for this Congress 
and this Government to be involved in the aftermath of 9/11, 
and I would argue that any time we had another terrorist event 
we should be considering that. Not that we always want to do 
it, but that it is a likely thing. I think the American people 
think that it is a likely thing. I think that businesses think 
it is a likely thing and the average person thinks it is a 
likely thing. And my expectation is that, since President Bush 
was so upfront after 9/11 in support of Government action, I 
would assume that he would be similarly situated in, God 
forbid, another situation.
    For me, based on that belief and on the presumption that 
that is your belief and the Administration's belief, we are 
really not talking about anything here other than how do we get 
there. And TRIA, we all agree, was temporary. And you have 
discussed, you mentioned shortchanging taxpayers. But the only 
way we shortchange taxpayers is if there is an event. If there 
is no event, nobody gets shortchanged; nothing changes.
    So, for me, between now and the time we actually come to a 
conclusion, we have to concern ourselves with two parts. I 
mean, I agree with you and the reason I want to echo the 
statements made earlier, the chairman's comments earlier about 
having a bill out, I agree. I look forward to working with him 
on it. And I think there is a good chance that we will do it. 
However, if there isn't, I also think we have to be honest 
about it. And if--the worst-case scenario is nothing. Under the 
situation of nothing, there is no backstop for anybody.
    The second worst-case scenario, I think I agree with you on 
many situations, is a simple extension of TRIA. However, I 
also, with some of the things I have heard today, make me 
concerned about whether we can actually get to an extension or 
a modified extension of TRIA. Number one is the things that Mr. 
Kanjorski mentioned; namely, the games that might be played 
that have nothing to do with insurance on so-called tort reform 
and other things. But I also want to comment very specifically 
on your proposal on the $500 million.
    Now, I fully admit that when we did triggers, as far as I 
was concerned most of the numbers were just guesses. They 
weren't based on anything. Was your $500 million based on 
anything, or was it just a more educated, updated guess?
    Secretary Snow. Well, this isn't science, of course. There 
is no logarithm you can turn to to get the answer to that 
question. But it is more than a hunch or a guess. We look at 
the $500 million as a threshold that is high enough that it 
will reduce unnecessary Government intrusion into the 
marketplace and create the opportunity for more private 
solutions while maintaining broad coverage. And in doing this, 
arriving at this number, we had lots of consultations, 
Congressman, with members of the industry. This reflects those 
conversations and consultations with them and looking at their 
own retention rates--and I won't go into all the details--their 
own statements of what they think the market can bear.
    Mr. Capuano. Mr. Secretary, again, I have no specific 
argument with the $500 million number because, again, to me it 
is just at the moment something pulled out of the air and I 
would like to hear more about it. But the reason I ask is 
because now and the time we have to renew this bill we have to 
come up with a real number. If it is $500 million, so be it. 
But for the sake of discussion, I don't think anybody here 
would argue that the London incident was an act of terrorism. I 
don't think anybody would argue that the Madrid train bombing 
was an act of terrorism, that Oklahoma City was an act of 
terrorism, and that Pan Am 103 was an act of terrorism. None of 
those would exceed $500 million. None of them. Not even all 
together would they exceed $500 million.
    Now, and the reason I point this out is because, again, a 
number pulled out of the air is very good, and if it 
statistically backed up, fine. And $500 million is not some 
number. But I would argue that the question that really should 
arise is what is it that we really think is a threshold number, 
a trigger number for the type of event that we want to get. And 
I personally, at least sitting here without any further 
additional information, would argue that any of the items we 
just--that I just mentioned and probably many more would 
certainly rise to the occasion of me as a Member of Congress 
wanting to consider whether we should take action and therefore 
should be below a trigger that we might put into TRIA. Again, I 
understand.
    The Chairman. The gentleman's time has expired.
    Mr. Capuano. But I would just point that out as a point of 
information as we go through the discussion.
    Secretary Snow. While I acknowledge this is not a 
scientifically verifiable number, it is a number that reflects 
the best thinking of the Treasury experts who arrived at it, 
and with which I concurred after consultations though, 
Congressman, with a lot of people in the industry and looking 
at their own retention rates. And I think it is a reasonable 
number and we can debate it, we can discuss it.
    The Chairman. The gentleman's time has expired. The Chair 
would indicate that the Secretary does have to leave in 25 
minutes, so we will try to move through the questioning as 
quickly as possible.
    The gentleman from New York.
    Mr. Crowley. Thank you, Mr. Chairman. I will try to be as 
quick as possible.
    Let me thank Mr. Capuano, Mr. Israel, Mr. Frank, and Mr. 
Kanjorski for helping to move at least on this side of the 
aisle some of the issues. And I just want to clarify for the 
record, the phone has been ringing off the hook in my office 
and I am from New York City and it is representative of both 
sides of the aisle, so to speak. And I do recognize the 
interest here that this is not a red or a blue issue, this is a 
red, white, and blue issue and one that needs to be addressed.
    It just harkens me back to an old adage of, albeit a nuance 
to it, of: If it ain't broke, fix it. That is kind of what I am 
getting from you, Mr. Secretary. On one hand you are saying 
what is taking place with TRIA was something that was good and 
it is a good thing that happened, yet we have to fix it. And I 
am not so sure that I just sort of come at it from that avenue. 
I look at it from the point that it has been effective, it has 
worked, it has been able to enable tenants with cities like 
mine in New York to continue to operate--and I am talking about 
corporate America--to continue to operate and therefore 
employing a lot of my constituencies, therefore employing a lot 
of the taxpayers that work in those industries and ancillary 
industries.
    The whole discussion before about the exposures of 
taxpayers or shortchanging taxpayers, when I point out that 
zero taxpayer dollars have actually been used from the, God 
forbid, an account after a terrorist attack, I mean, the whole 
thing here is about we hope that this never happens again, 
albeit we see what happened in London. We know that they have 
their intentions on doing something again, and unfortunately, I 
don't think we can wait. I don't think the terrorists are going 
to say, well, let us let them figure out how to deal with the 
long-term exposure with the threat of terrorism. They are not 
going to give us that luxury. Therefore, we have had this last 
2-year period, and what we are looking for is an extension so 
that the industry itself can come to some conclusion in 
conjunction with Treasury, in conjunction with the committee in 
both Houses to come up with an overall final solution to the 
problem.
    I will just ask quickly, what is your time limit? What do 
you perceive as being the time line that is necessary? I know 
you mentioned a couple of years. But specifically what do you 
see laid out in that period? And group life. Again, I think 
what Mr. Frank talked about before, we are going to cover 
property but not lives themselves. We know that the Victims 
Compensation Board did an admirable job. Is that how we are 
going to move forward in the future if, God forbid, there was 
another terrorist attack?
    And before you answer that, Mr. Chairman, I would like to 
yield the balance of my time to the young lady from Chicago, 
Ms. Bean.
    Ms. Bean. Thank you, Congressman Crowley. Thank you, Mr. 
Chairman. Thank you, Mr. Treasury Secretary, for being here 
today. I just wanted to follow up on a point expressed by my 
colleagues Maloney and Capuano regarding the increase to $500 
million as the trigger. I don't think you got an opportunity to 
necessarily respond to Congressman Maloney earlier. And 
certainly Congressman Capuano talked about several other 
incidents that would not have been covered. At $32 million, 
even 9/11 wouldn't be covered. How can you say to areas like 
New York or Chicago--I represent a suburban district of Chicago 
- that you are really providing a viable backstop?
    Secretary Snow. You heard me describe how the $500 million 
came about, consultations with industry representatives, 
looking at current retention levels that they are able to put 
in place. The recognition that we have had over this last 3 
years, much higher take-up rates have been observed. Even as 
the program's deductibles have gone up as required in the 
statute--you recall the framework or the statute is every year 
the deductible goes up. Even in the face of that we have seen 
these sorts of numbers I recited earlier indicating that 
coverage in take-up rates have broadened. So what we are seeing 
here is the insurance industry maturing, developing, probably 
doing better modeling, better assessments, and putting itself 
because of its stronger financial position in a better position 
to offer the very coverage that we want to see them offer.
    Ms. Bean. Thank you very much. I yield back the balance of 
my time.
    The Chairman. The gentlelady yields back. The gentleman 
from New York, Mr. Israel.
    Mr. Israel. Thank you, Mr. Chairman. Mr. Secretary, thank 
you for your patience. Mr. Secretary, one of the things that we 
do very well around here is to snatch defeat from the jaws of 
victory. We had a victory on TRIA in the last Congress. There 
has been a lot of talk today about working out some 
differences, reaching consensus, developing a bipartisan 
approach with the Administration. Been there, done that. It 
happened in the last Congress. We were on the suspension 
calendar. We were a couple minutes away from a vote on a 
product of consensus from this committee, and then it got 
pulled at the last minute. Mr. Capuano, Mr. Kanjorski and I 
have introduced a bill that is very similar to the bipartisan 
product of consensus that was approved in this committee in the 
last Congress, and I really am hopeful that we can work 
together with the Administration and get something done that 
makes sense in this Congress.
    Let me just ask you a question about process, the process 
by which you formulated the report. My district is about 50 
miles from Ground Zero, and I hear regularly from the real 
estate community, from the insurance community, from the 
financial services community that they are exceedingly nervous 
about what will happen not if TRIA is not extended, but what is 
happening right now, what the trends are right now. Exclusion 
clauses are already being written into insurance contracts. 
Premiums are already becoming unaffordable for proposed 
developments next year and the years after. Instability has 
already set in against the uncertainty of a Federal role. It 
seems to me that the reality that I am hearing from the 
marketplace in my congressional district and near my 
congressional district doesn't necessarily square with the data 
that is reflected in your report.
    One of the questions I have with respect to that data and 
that process is, at what point did you stop taking economic 
data from the various experts? In other words, and 
specifically, was second quarter data included and reflected in 
the report that was submitted to Congress?
    Secretary Snow. The data I am advised ran through February 
of 2005. So it might not reflect some of these sentiments that 
I assume reflect uncertainty about the future of the program. 
Congressman, if you are suggesting that uncertainty is the 
enemy of well functioning markets, I agree with you. Business 
people need to have a sense of certainty in order to make 
market decisions. So, you know, I have said it over and over 
again, I hope we can move forward with these reforms to the 
program that we started with the opening comment by the 
Chairman on.
    Mr. Israel. Just so I make sure I am clear. Any submissions 
of data from various experts after February that may have 
reflected a growing uncertainty or more up-to-date trends were 
not able to be included--
    Secretary Snow. We did not--
    Mr. Israel. Fair enough.
    One final point if I may, Mr. Chairman. You know, we have 
heard a lot of talk about taxpayer liability and the cost of 
TRIA to the taxpayer. Mr. Secretary, I appreciate your candor 
and honesty as a matter of common sense that there has been no 
cost to the taxpayer of TRIA. There has been some talk about 
how the Federal Government doesn't have an answer to every 
program; there is not a Federal program that can help every 
problem. I agree with that entirely.
    I would say that in addition to national flood insurance, 
you know, we have a wonderful crop subsidy program. It is 
costing the Department of Treasury $19 billion this year to 
subsidize the agricultural industry not to grow crops. Now, I 
don't know how you can defend subsidies from the Federal 
Government in order to keep crop prices high but say there is 
no role for the Federal Treasury to play in not helping to 
create a backstop for insurance to keep premiums and consumer 
costs low.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Crowley. Would the gentleman yield for just a moment?
    Mr. Israel. I yield to the gentleman.
    Mr. Crowley. Mr. Chairman, if I could just ask, I am also 
hearing from industry about the timing of this; that if 
policies are not issued--or the sense that there is going to be 
a TRIA next year, that policies be issued in October of this 
year and not in December of this year. Is that something that 
the Secretary is aware of as well in terms of the timing of 
getting legislation passed?
    Secretary Snow. I am aware, having gone through the 
exercise here a year ago, that timeliness with respect to where 
this is going to go is very important to the industry, yes.
    The Chairman. The gentleman's time has expired. The 
gentleman from Kentucky.
    Mr. Davis of Kentucky. Thank you, Mr. Chairman.
    Mr. Secretary, I would like to follow on your remarks just 
now on the comments of a sense of certainty, which is one 
aspect I think that is important to cover. Certainly in the 
September 11th attacks, one of the clearly articulated but I 
think culturally misunderstood aspects of the attacks were a 
goal to disrupt our economy, damage the financial markets as 
well as making a profound visual statement and inflicting pain 
on our Nation. TRIA concerns me very much in the sense of not 
opening a window of additional vulnerability, knowing that 
there is a backstop of some kind of place to instill confidence 
in the markets.
    I have a couple of questions along these lines. Are lenders 
now requiring that developers have terrorism coverage on new 
properties like large shopping malls and office buildings?
    Secretary Snow. Do they take an interest in whether they 
have them or not?
    Mr. Davis of Kentucky. I know many do take an interest. But 
as a--
    Secretary Snow. Yes.
    Mr. Davis of Kentucky. Basis of requirement for lending.
    Secretary Snow. In some cases, yes.
    Mr. Davis of Kentucky. If that is the case, and I guess my 
question would be is if TRIA is not extended in some proactive 
form, what would be the consequences for these lenders and 
developers in what might be targeted or in--that is a bad 
choice of words--in, say, high-value structures?
    Secretary Snow. It would very much depend on the 
performance of the industry and the absence of TRIA, of course, 
and how much capacity it would have. What we are calling for is 
of course reforming the system, revamping it, making it more 
effective, and allowing the private sector to play a bigger 
role, and I think if we do what we are suggesting that we would 
see the private sector respond and we would get higher take-up 
rates even as the deductibles in the retentions go up.
    Mr. Davis of Kentucky. Do you feel, just as a final point, 
that were TRIA not extended do you think that lenders may 
determine that the risks are too great, that they would call 
loans early if insurers are unable to extend coverage?
    Secretary Snow. Congressman, I have not had a chance to 
assess that issue as such. It would be hard for me to be 
getting inside the minds of the lenders to give you an informed 
answer on that.
    Mr. Davis of Kentucky. Perhaps if one of your staff has a 
chance, I would be very appreciative if they might share a 
perspective on that question.
    Secretary Snow. Good. Thank you.
    Mr. Davis of Kentucky. I yield back, Mr. Chairman.
    The Chairman. The gentleman yields back. The gentleman from 
North Carolina.
    Mr. Frank. Mr. Secretary, we have three more members--if 
you could promise us an additional 5 minutes, we have some of 
our most conscientious members who have been here throughout 
this. So I would ask for 5 minutes indulgence.
    Secretary Snow. Thank you.
    The Chairman. I thank the Secretary. The gentleman from 
North Carolina.
    Mr. Miller of North Carolina. Thank you, Mr. Chairman.
    Secretary Snow, I support the extension of TRIA. I 
cosponsored the legislation in the last Congress and voted for 
it in this committee, and I have cosponsored the legislation in 
this Congress. But I have a concern about TRIA that no one 
really has expressed today, and that is the effect that it has 
on the market encouragement for private sector preparedness. It 
appears to me that heavily subsidized reinsurance tends to 
undermine, to weaken the private sector encouragement for 
preparedness. And obviously some, a great deal of what we have 
to do to prepare for terrorist attacks is on the Government 
side. It is intelligence, it is law enforcement, but also some 
of it, a lot of it has to be on the private sector side as 
well.
    The 9/11 Commission report said that 85 percent of our 
critical infrastructure was in the private sector. It said that 
witness after witness told us that, despite 9/11, the private 
sector remains largely unprepared for a terrorist attack and 
concluded that private sector preparedness is not a luxury, it 
is a cost of doing business in the post-9/11 world. It is 
ignored at a tremendous potential cost of lives, money, and 
national security.
    Mr. Secretary, I was intrigued to read an article in the 
Boston Globe earlier this year, February 22, that said that the 
Department of Homeland Security was looking at using insurance 
or encouraging insurers to push private sector preparedness, 
and said the basic idea would be to have the Government or each 
industry develop a minimum set of security best practices, and 
then insurers would audit companies for compliance with those 
standards with the power to reduce premiums for those who 
comply.
    That seems to be contrary, to be inconsistent with TRIA as 
it is now written, but it also is not anything that is included 
in the Department's, your Department's recommendations. What 
has become of those recommendations? Do you know, Mr. 
Secretary?
    I was pleased to hear that you were speaking to Secretary 
Chertoff this morning. I hope you all talk all the time.
    Secretary Snow. Congressman, my testimony and the report I 
think both stress that one reason for the reforms or revamping 
changes that we are suggesting is to give the private sector 
more incentive to do mitigation. I think there would be 
mitigation, I think there would be adaptations that we don't 
see today because TRIA is there with the reinsurance. So 
absolutely I think the incentives for mitigation behaviors 
would be much stronger in the sort of environment we are 
suggesting be created.
    Mr. Miller of North Carolina. Was the only thing that you 
proposed to do to kind of ratchet back the extent of 
reinsurance, or are there other specific--as this article seems 
to suggest, that the Homeland Security Department is 
considering other specific measures to encourage--
    Secretary Snow. The Homeland Security Department, of 
course, is dealing with a lot of that in their consultations 
with individual industries. My old industry, the 
transportation, railroads and ocean shipper companies and barge 
lines and truck lines, which is my business, they are working 
with them to do just that.
    Mr. Miller of North Carolina. Right. I am happy for that. 
But what are they doing other than encouraging it? I want them 
to encourage, but are they--
    Secretary Snow. Well, there are consultations. They are 
pointing out risks.
    Mr. Miller of North Carolina. Great.
    Secretary Snow. They are pointing out--
    Mr. Miller of North Carolina. There is not any regulatory 
requirement?
    Secretary Snow. Not that I am aware of. But in my days, I 
remember Tom Ridge calling me and saying, ``John, you have got 
to worry about this and worry about that.''
    Mr. Miller of North Carolina. And is there any effort that 
is going to come from this Administration to try to encourage 
the insurance industry to differentiate in premiums based upon 
the level of preparedness?
    Secretary Snow. Well, the insurance industry itself has a 
huge incentive to do that if we let the marketplace play a 
bigger role. Because that is what insurance does. I mean, if 
you have got a brick house, your fire insurance policy is lower 
than if you have got a tinder wood house.
    Mr. Miller of North Carolina. Your testimony today with 
respect to the liability system--and I read that the way that 
Mr. Frank did, that the phrase ``allow unscrupulous trial 
lawyers to profit from a terrorist attack'' basically means you 
are going to ratchet back the civil liability system. I am sure 
as both the holder of a law degree and a Ph.D. In economics, 
you are aware of the wealth of economic theory mostly by 
conservative economists like Milton Friedman and Richard Posner 
that the civil liability system is a market mechanism to push 
preparedness. Are we not, if we protect ill-prepared, slothful 
private sector entities from the liability for the losses that 
come from their lack of preparedness, that we are going to 
undermine the market encouragement for preparedness?
    The Chairman. The gentleman's time has expired. The 
Secretary may respond.
    Secretary Snow. That is not our intention.
    The Chairman. The gentleman from Georgia, Mr. Scott.
    Mr. Scott. Thank you very much. Thank you, Mr. Secretary. 
It is good to have you here. I represent the Atlanta, Georgia, 
metro area which is of course like so many other major cities 
in this country, but certainly its uniqueness being the center 
for headquarters for the Centers for Disease Control, the 
world's busiest airport, we have got real brand name companies 
like CNN and Coca Cola companies which terrorists--have been 
known to be on terrorists' targets. So we are very much 
concerned about this issue with TRIA.
    I think the issue that concerns me is the phase of your 
testimony dealing with opening up the private markets, the 
markets would be more attainable in saving the taxpayers money 
and so forth. But I think our primary concern here is to 
understand the nature of our situation in this war on terror, 
homeland security being a Homeland Security, national security 
issue. So there is a primary responsibility for the Federal 
Government to make sure that our safety and security is at 
stake.
    For the very nature of your moves and the tools that you 
are advocating in the reforms concern me. While you are saying 
we will, I think your conclusion is that we will move ahead 
with TRIA, but when you mention that you want to increase 
deductibles, you want to increase copayments, you want to do 
away with liability, you want to kick the auto insurance out, 
you don't want to include group insurance, and then you want to 
raise the trigger from $25 million to $500 million, that is 
like shooting holes in a ship and then putting it on out to 
sea. I mean, there is enough there to sink it before you even 
move.
    In good times, when you use those figures, and the 
insurance company, insurance industries use those tools, 
deductibility, the copayments, but based upon some level of 
certainty, the two major issues we are faced with, with this 
new entity we are faced with in terror is the mass, the huge 
uncertainty, number one, of the events, and, number two, the 
hugeness of the cost. We are talking about billions of dollars. 
So I am concerned that, with your tools that you are using in 
terms of encouraging the free market to come in place, given 
the nature of our problem. I don't believe, I don't agree with 
you and maybe you can share this with me, that our insurance 
industry has the capacity to even deal with a problem of this 
magnitude. And so I am concerned that we move with caution as 
we revamp TRIA and that your remedies might be too drastic and 
could have a negative impact.
    Secretary Snow. Congressman, thank you for those 
observations. The insurance industry of course, as you know, 
writes policies based on the surplus that they have relative to 
the size of the risk that they are undertaking. Our study was 
careful to look at that critical set of relationships and 
concluded, as you know from the study, that insurance provision 
beyond some level was beyond the capacity of the individual 
private insurer. So we are agreeing with you.
    What we are proposing here is take TRIA, use that 
framework, but revamp it some. And I don't think we are 
revamping it in a way that does damage to the ability--in fact, 
quite the contrary, we are revamping it in a way that 
encourages the ability of the marketplace to bear more of the 
risks. And as the implicit subsidy--there is no payout of any 
subsidy, but as the implicit subsidy gets reduced, it is going 
to expand the role for the private sector. And I think that 
even as the copays go up and the deductibles go up, we will see 
the take-up rates continue to rise because that is precisely 
what we have observed in the last 2 years as under TRIA those 
deductible levels have gone up.
    But as I said earlier in response to questions with 
Congressman Frank, I agree with you, this isn't theology, this 
is a matter of trying to find a reasonable set of answers to 
how these risks should be shared between private sector and 
taxpayers.
    Mr. Scott. Why wouldn't we adjust it and revamp it going 
forward based upon the most obvious need that is coming to us? 
For example, we know now that one of the--
    The Chairman. The gentleman's time has expired. You may 
finish up your question.
    Mr. Scott. If I could finish my point, is that this war on 
terror, the types of attacks are changing as we speak. The one 
thing that we learned about London is evolving is that these 
were not folks coming in or foreigners, they were citizens who 
were living there, they were young people who committed this. 
Loss of life is paramount in terms of infrastructure. Given 
that new phenomenon, why wouldn't we want to include group life 
insurance, for example? Why wouldn't we want to include them?
    Secretary Snow. Well, this again is a matter that Mr. Frank 
has raised with me. You will recall, the original TRIA statute 
passed in November of 2002, directed Treasury to look at group 
life and consider whether it should be included, to do a study 
and conclude. And you gave us two criteria. Basically, the two 
criteria were availability of insurance and availability of 
reinsurance. We found that there was an insufficient 
availability of reinsurance, but we found that insurance itself 
was generally and widely available. So we didn't meet the 
statutory test and therefore we did not feel that group life 
should be included. And we are at that same position.
    The Chairman. The gentleman's time has expired. The 
gentleman from Alabama, the cleanup hitter for today's 
activities.
    Mr. Davis of Alabama. Thank you, Mr. Chairman. To be as 
respectful, Mr. Secretary, of your time as possible, I am going 
to ask you three questions and then ask you to respond to them 
and try to move as quickly as we can so you can go home or go 
to your next meeting.
    The first question I suppose relates to the whole premise 
behind the report from Treasury. The whole premise is that the 
market is slowly engaging in a series of correctives over the 
last several years and that you are confident that these 
correctives will continue without an extension of TRIA in its 
current form. My first question would be a fairly basic one. 
How much of the market's readjustment is itself linked to an 
expectation that TRIA will be renewed in its current form? That 
would seem to be a reasonable possibility to me. And a lot of 
the readjustment that is occurring is against a backdrop of 
Congress doing something that you seem to oppose is question 
one.
    Question number two, this is a very real concern that I 
have about the event limit being raised to $500 million. There 
is every reason to think, unfortunately, that the strategy of 
al Qaeda or whatever passes for al Qaeda now will be to shift 
toward suicide attacks on soft targets, and that al Qaeda may 
very well have in its capacity, in its mindset an ability to 
start doing the kind of pinprick suicide attacks that are 
common in the Middle East, that were last week in London, and 
that these kinds of things could be done 4 or 5 times a year if 
we are unlucky. If we were to raise the event coverage to $500 
million, given that a London scale attack, even though New York 
or Washington would fall way short of that, and any single 
limited suicide type bombing would fall well short of that, 
what about the possibility that we would enter this very 
uncertain environment if we raise the level to $500 million 
where there could be repeated attacks in the United States, 
none of them anywhere near the Government's backdrop but yet 
rising uncertainty in the market because of this new rhythm of 
attacks? That strikes me as a very real worry.
    And finally, Mr. Secretary, the third point. If I 
understand your position correctly, you are not one of the 
theologists on this issue who believe that the Government just 
shouldn't be involved as a backstop. You reject that premise. 
You are for an extension provided event coverage is expanded. I 
am concerned given that stance about some of the language in 
the report that has been issued. One of the sentences in your 
report states, ``We do not believe that the elimination of the 
Federal terrorism risk reinsurance subsidy is likely to have a 
discernible macroeconomic impact or effect.''
    There are other sentences to the effect that expiration of 
TRIA will still lead to a continued instance of the market 
developing additional terrorism insurance capacity.
    I am concerned, and I think you might want to be concerned, 
too, about some people taking some of the broad conclusions in 
this report and using it as an argument against any TRIA 
extension. The majority leader, frankly, in a talk that he gave 
several months ago questioned whether or not the Government 
should inject itself into the market in this manner and 
suggested that you could not have any extension of TRIA without 
doing real violence to the market.
    So given the fact that you favor an extension of TRIA, are 
you not concerned that some of the language in this report 
could very well be used by someone like Mr. DeLay who doesn't 
agree with your opinion? Those are my three questions.
    Secretary Snow. I will leave it to Mr. DeLay to figure out 
how to use our report, and I will sit down with him and tell 
him what we think it says.
    On your question about--and I think it is a good question, 
it is an important question about continuing series of small-
scale attacks. I am just back from Europe, and that is a very 
real concern that is very much on the mind of European 
authorities. Under our proposal, the backstop would stay in 
place because it is an aggregate loss of $500 million. So it 
would cover a series of small attacks--five attacks at $100 
million would aggregate to the trigger, if all were related.
    Mr. Davis of Alabama. But September 11th with 3,000 dead, 
and there was about $32 million. You would still be way short 
if you had a series of pinpricks.
    Secretary Snow. Billion you mean? That was $33 billion.
    Mr. Davis of Alabama. Right.
    Secretary Snow. So it would be way over the number here.
    You know, the $500 million, we can debate the $500 million. 
As I have said over and over, this is a best judgment. 
Sometimes all you can do is render a best judgment because 
there is nothing else to return to.
    Mr. Davis of Alabama. What about the first question? I 
don't want you to miss the first question.
    Secretary Snow. The first question, which had to do with 
has the take-up rates been influenced by the fact that there is 
an expectation of TRIA being, as I got it right, being 
extended. Maybe to some extent, yeah. I think there is a sense 
in the marketplace that TRIA will be extended. I think that is 
something that we would acknowledge. And to save time, I think 
there is a case to be made, a good case for the sorts of 
changes that I have called for.
    The Chairman. The gentleman's time has expired.
    Mr. Frank. Mr. Secretary, briefly, and I really appreciate 
your time, just two points. One, when we talk about what 
happens if we do or don't and whether or not--but this is one 
case where I think we need to do a dynamic model and not just a 
static one. That is, again, my conversations have been to a 
great extent with some of the end users. And it is not just a 
case of, well, if a given amount of construction goes forward, 
will there or won't there be insurance. What I am concerned 
about is that the volume will go down, that the insurers will 
be out of it.
    Secondly, I just want to make a philosophical point that is 
kind of important. And it is a philosophical point that 
justifies I think a continuing Government role. With regard to 
insurance--Mr. Miller's question raised this--we do want to put 
some substantial part of the burden on the insured so that the 
insured can take steps to avoid the problem. It is an incentive 
to do better. Terrorism for us today is a largely external 
threat against the United States based on people who dislike 
us, who hate us, who unfairly want to victimize us. To the 
extent that we put the entire burden of insuring against 
terrorism ultimately on those who would be the victims of it, I 
think that is philosophically not justified. This is not a case 
where people are victims because of their own misdeeds. This is 
a case where a certain number of Americans because of where 
they are and what they do may be bearing the brunt of attacks 
based on anti-Americanism in general. To that extent I think 
there is a philosophical justification for socializing the risk 
and to some extent through taxpayers; that is, people in the 
big cities, people who are particularly likely to be targets I 
think are entitled to some burden sharing because that is where 
it comes from.
    The Chairman. The Chair wishes to thank the Secretary once 
again for his valuable time and sharing it with us. It was a 
most helpful hearing, and the Chair wants to continue to work 
with the Secretary and his very able folks at Treasury to craft 
an answer to this situation.
    The committee is adjourned.
    [Whereupon, at 4:40 p.m., the committee was adjourned.]

                            A P P E N D I X

                             July 13, 2005

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