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





                         TERRORISM THREATS AND

                          THE INSURANCE MARKET

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

                             JOINT HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                                AND THE

                            SUBCOMMITTEE ON
                   INTELLIGENCE, INFORMATION SHARING,
                     AND TERRORISM RISK ASSESSMENT

                                 OF THE

                     COMMITTEE ON HOMELAND SECURITY

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 25, 2006

                               __________

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

                    Committee on Financial Services
                           Serial No. 109-111

                     Committee on Homeland Security
                           Serial No. 109-93




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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          NYDIA M. VELAZQUEZ, New York
FRANK D. LUCAS, Oklahoma             MELVIN L. WATT, North Carolina
ROBERT W. NEY, Ohio                  GARY L. ACKERMAN, New York
SUE W. KELLY, New York, Vice Chair   DARLENE HOOLEY, Oregon
RON PAUL, Texas                      JULIA CARSON, Indiana
PAUL E. GILLMOR, Ohio                BRAD SHERMAN, California
JIM RYUN, Kansas                     GREGORY W. MEEKS, New York
STEVEN C. LaTOURETTE, Ohio           BARBARA LEE, California
DONALD A. MANZULLO, Illinois         DENNIS MOORE, Kansas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
JUDY BIGGERT, Illinois               RUBEN HINOJOSA, Texas
CHRISTOPHER SHAYS, Connecticut       JOSEPH CROWLEY, New York
VITO FOSSELLA, New York              WM. LACY CLAY, Missouri
GARY G. MILLER, California           STEVE ISRAEL, New York
PATRICK J. TIBERI, Ohio              CAROLYN McCARTHY, New York
MARK R. KENNEDY, Minnesota           JOE BACA, California
TOM FEENEY, Florida                  JIM MATHESON, Utah
JEB HENSARLING, Texas                STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            BRAD MILLER, North Carolina
GINNY BROWN-WAITE, Florida           DAVID SCOTT, Georgia
J. GRESHAM BARRETT, South Carolina   ARTUR DAVIS, Alabama
KATHERINE HARRIS, Florida            AL GREEN, Texas
RICK RENZI, Arizona                  EMANUEL CLEAVER, Missouri
JIM GERLACH, Pennsylvania            MELISSA L. BEAN, Illinois
STEVAN PEARCE, New Mexico            DEBBIE WASSERMAN SCHULTZ, Florida
RANDY NEUGEBAUER, Texas              GWEN MOORE, Wisconsin,
TOM PRICE, Georgia                    
MICHAEL G. FITZPATRICK,              BERNARD SANDERS, Vermont
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina
CAMPBELL, JOHN, California

                 Robert U. Foster, III, Staff Director
              Subcommittee on Oversight and Investigations

                     SUE W. KELLY, New York, Chair

RON PAUL, Texas, Vice Chairman       LUIS V. GUTIERREZ, Illinois
EDWARD R. ROYCE, California          DENNIS MOORE, Kansas
STEVEN C. LaTOURETTE, Ohio           CAROLYN B. MALONEY, New York
MARK R. KENNEDY, Minnesota           STEPHEN F. LYNCH, Massachusetts
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   EMANUEL CLEAVER, Missouri
TOM PRICE, Georgia                   DAVID SCOTT, Georgia
MICHAEL G. FITZPATRICK,              DEBBIE WASSERMAN SCHULTZ, Florida
    Pennsylvania                     GWEN MOORE, Wisconsin
GEOFF DAVIS, Kentucky                BARNEY FRANK, Massachusetts
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio
?

                     COMMITTEE ON HOMELAND SECURITY

                   Peter T. King, New York, Chairman

Don Young, Alaska                    Bennie G. Thompson, Mississippi
Lamar S. Smith, Texas                Loretta Sanchez, California
Curt Weldon, Pennsylvania            Edward J. Markey, Massachusetts
Christopher Shays, Connecticut       Norman D. Dicks, Washington
John Linder, Georgia                 Jane Harman, California
Mark E. Souder, Indiana              Peter A. DeFazio, Oregon
Tom Davis, Virginia                  Nita M. Lowey, New York
Daniel E. Lungren, California        Eleanor Holmes Norton, District of 
Jim Gibbons, Nevada                  Columbia
Rob Simmons, Connecticut             Zoe Lofgren, California
Mike Rogers, Alabama                 Sheila Jackson-Lee, Texas
Stevan Pearce, New Mexico            Bill Pascrell, Jr., New Jersey
Katherine Harris, Florida            Donna M. Christensen, U.S. Virgin 
Bobby Jindal, Louisiana              Islands
Dave G. Reichert, Washington         Bob Etheridge, North Carolina
Michael T. McCaul, Texas             James R. Langevin, Rhode Island
Charlie Dent, Pennsylvania           Kendrick B. Meek, Florida
Ginny Brown-Waite, Florida

                                 ______

 SUBCOMMITTEE ON INTELLIGENCE, INFORMATION SHARING, AND TERRORISM RISK 
                               ASSESSMENT

                   Rob Simmons, Connecticut, Chairman

Curt Weldon, Pennsylvania            Zoe Lofgren, California
Mark E. Souder, Indiana              Loretta Sanchez, California
Daniel E. Lungren, California        Jane Harman, California
Jim Gibbons, Nevada                  Nita M. Lowey, New York
Stevan Pearce, New Mexico            Sheila Jackson-Lee, Texas
Bobby Jindal, Louisiana              James R. Langevin, Rhode Island
Charlie Dent, Pennsylvania           Kendrick B. Meek, Florida
Ginny Brown-Waite, Florida           Bennie G. Thompson, Mississippi 
Peter T. King, New York (Ex          (Ex Officio)
Officio)


























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 25, 2006................................................     1
Appendix:
    July 25, 2006................................................    29

                               WITNESSES
                         Tuesday, July 25, 2006

DeBoer, Jeffrey D., President and CEO, The Real Estate Roundtable    13
Fleming, Terry, Director of External Affairs, Risk and Insurance 
  Management Society.............................................     9
Lewis, Christopher M., Vice President, Alternative Market 
  Solutions, P&C Capital Management, The Hartford Financial 
  Services Group, Inc............................................    14
Ulrich, Peter, Senior Vice President, Model Management, Risk 
  Management Solutions, Inc......................................    11

                                APPENDIX

Prepared statements:
    DeBoer, Jeffrey D............................................    30
    Fleming, Terry...............................................    48
    Lewis, Christopher M.........................................    66
    Ulrich, Peter................................................    70

              Additional Material Submitted for the Record

Kelly, Hon. Sue W.:
    Statement of the American Insurance Association..............    80
    Statement of the Independent Insurance Agents & Brokers of 
      America....................................................    88
    Statement of the RAND Corporation............................    97
Dent, Hon. Charlie:
    Responses to questions submitted to Peter Ulrich.............   104















 
                         TERRORISM THREATS AND
                          THE INSURANCE MARKET

                              ----------                              


                         Tuesday, July 25, 2006

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                  and Subcommittee on Intelligence,
                 Information Sharing, and Terrorism
                                   Risk Assessment,
                            Committee on Homeland Security,
                                                   Washington, D.C.
    The subcommittees met, pursuant to notice, at 10:00 a.m., 
in room 2128, Rayburn House Office Building, Hon. Sue Kelly 
[chairwoman of the Subcommittee on Oversight and 
Investigations] presiding.
    Present: Representatives Kelly, Royce, Kennedy, Garrett, 
Dent, Simmons, Gutierrez, Moore of Kansas, Maloney, Cleaver, 
Scott, Frank, Lofgren, Lowey, and Thompson.
    Also present: Representatives Israel and Crowley.
    Chairwoman Kelly. This hearing will come to order. Without 
objection, all members' opening statements will be made a part 
of the record.
    Today, this joint hearing of the Subcommittee on Oversight 
and Investigations and the Subcommittee on Intelligence, 
Information Sharing, and Terrorism Risk Assessment is going to 
examine terrorism threats and the insurance market.
    We are fast approaching the 5th anniversary of the 
September 11, 2001, attacks on our country. That series of 
attacks on New York and Washington, D.C., cost this country 
more than $60 billion in losses. Hundreds of billions more was 
lost in the economic activity from the fear and uncertainty 
unleashed by these acts of terror. In response to that attack, 
Congress passed the Terrorism Risk Insurance Act (TRIA) to 
ensure the supply of insurance against terrorism in areas where 
that supply had been destroyed by the attacks.
    Last December, Congress authorized TRIA for 2 additional 
years while a permanent solution to the problem of terrorism 
insurance supply was developed by insurance providers, 
consumers, and government stakeholders. Insurance supply has 
been a focus of these efforts, but insurance demand created the 
need. Too often, the debate on terrorism insurance focuses on 
supply side questions and forgets the needs that drove us to 
this point.
    In the 5 years since the September 11th attacks, efforts to 
perpetrate another large-scale terrorist activity within the 
United States have not succeeded, but the threat remains. The 
U.S. Government and the private sector must operate based on a 
certainty of a terrorist attack in the near to medium term. We 
do not know what form the next attack will take but we have 
every reason to believe our enemies are seeking to inflict mass 
casualties, mass economic attacks, and multiple targets to 
maximize damage and weaken the first response capacities.
    The terrorist risk, while unknown, is not outside the scope 
of reason, though through threat assessment and correlation 
with previous attacks, the size and scope of future attacks can 
be imagined. Risk can also be measured both geographically and 
countrywide. Countries and companies both can measure risk.
    Pre-attack mitigation can also reduce vulnerabilities; 
modeling an assessment of risk can create a situation that 
allows the demand for terrorism insurance to be quantified. 
Modeling of terrorism risk must be based on accurate data and 
the assessments must not be limited by a failure of 
imagination.
    Two examples from my home State of New York are 
illustrative. The Department of Homeland Security used the 
National Asset Data Base to help assess risk and thus share 
funds with vulnerable communities. Unfortunately, this database 
was full of activities such as petting zoos, popcorn packers, 
pizza parlors, and, of course, the famous Mule Day in 
Tennessee. While the Homeland Security Department disputes the 
notion that this database is flawed, no one disagrees that 
local politics help create a list of negligible utility.
    Failures of imagination are equally dangerous. Our enemies 
can think and they have constantly shown that they are willing 
to try new attack methods and target sets. Accepting the status 
quo for recognizing the threat is no longer good enough. For 
instance, in my district, the Indian Point Nuclear Power Plant 
sits on the Hudson River in the middle of the largest urban 
area in the country. No one at the Department of Homeland 
Security had ever questioned whether an attack by a high-speed 
boat was possible despite suggestions that Al Qaeda has shown 
an increasing interest in the sea as an attack vector. When I 
asked the Coast Guard admiral responsible for planning to meet 
the threat about this, he admitted that this was a threat that 
was not being assessed. What other threats are we not preparing 
for because we have not asked the proper questions? How do 
unaddressed threats change discussions of what needs to be 
insured and how much insurance we need?
    I now yield to the ranking member from Illinois for his 
opening statement. We are raising questions here. We hope that 
this panel will help us find some answers.
    Mr. Gutierrez?
    Mr. Gutierrez. Good morning and thank you, Chairwoman 
Kelly, and Chairman Simmons, who will join us shortly. I am 
pleased to be here today along with our colleagues on the 
Homeland Security Committee to review and discuss the effects 
of terrorism on the insurance market. A strong, viable 
insurance market is vital to the overall health of our national 
economy. Nearly 5 years ago, the stability of the insurance 
industry was put in jeopardy when insurers and re-insurers lost 
more than $30 billion as a result of the 9/11 attacks. 
Following the substantial losses, insurers were unable to make 
terrorism insurance available, which left many of our Nation's 
businesses vulnerable to unacceptable financial risk. In 
response, Congress enacted the Terrorism Risk Insurance Act or 
TRIA to provide a temporary, limited Federal backstop in the 
event of another terrorist attack in the United States. I am a 
strong supporter of TRIA and believe it is necessary to provide 
stability for our economy in the post-9/11 world.
    I was pleased that we passed legislation late last year 
that extended TRIA until the end of 2007, but the 2007 deadline 
is only 17 months away. And at this point, the market is not 
yet stabilized, and the need for TRIA remains. I do not, 
however, believe that TRIA is perfect in its current form; some 
changes should be made to improve the legislation. We should be 
mindful that TRIA is not intended to be a permanent program and 
that eventually the private market must adjust. I do not want 
to see the Federal Government as a permanent re-insurer of last 
resort, at least not at the liability levels that exist under 
the current version of TRIA.
    In order for this to happen, however, the industry needs to 
make substantial progress with its prediction models. I would 
like to hear from our industry witnesses what they believe are 
the specific weaknesses in the current prediction models, and 
any suggestions they may have to improve the ability to access 
and price terrorism risks. From our risk management experts, I 
am interested in hearing about the progress they have made in 
making models more accurate and what information they believe 
they need to further improve accuracy. For example, in written 
testimony, RMS proposes allowing the insurance industry or risk 
management experts access to classified information. I am 
curious about how this information can be kept secure while at 
the same time used to improve prediction models. Finally, I am 
interested in hearing our witnesses' opinions on improvements 
to TRIA if and when another extension is considered. The bottom 
line is terrorism insurance must continue to be available in a 
comprehensive and affordable manner. Whether that includes 
TRIA, another form of Federal backstop, or the private sector 
assuming full liability remains to be seen. What we do know is 
that strong markets require certainty and 17 months is a short 
time in the forward-looking insurance industry. Therefore, we 
must all act with deliberate speed in developing a more long-
term solution.
    I yield back the balance of my time.
    Chairwoman Kelly. Thank you, Mr. Gutierrez. I yield to the 
gentleman from Connecticut.
    Mr. Simmons. Thank you, Madam Chairwoman, and thank you 
everybody for being here today. As chairman of the Committee on 
Homeland Security's Subcommittee on Intelligence, Information 
Sharing, and Terrorism Risk Assessment, I understand how vital 
information sharing and risk assessment can be to understanding 
the nature of the terrorist threat. The insurance industry 
faces many challenges when attempting to model terrorism risks. 
As a private sector entity, one of the key challenges is 
getting information on the nature of the threat. In simplest 
terms, risk assessment is the result of weighing vulnerability, 
consequence, and the likelihood that an event may occur. But 
without information on the nature of the threat, measuring risk 
becomes extremely difficult. Often information related to 
terrorism is sensitive, classified, and locked in a vault 
somewhere. And while this secrecy culture is slowly changing, 
some information on threats and vulnerabilities must remain 
secret.
    Many in private industry, including the insurance industry, 
believe that they lack some of the very basic terrorist-related 
information that would help them evaluate the likelihood of 
future terrorist events. So one of the things that I would like 
to understand, and that I hope our witnesses can help us to 
understand here today, is where do you get your information? Do 
you rely on open sources of information, for example? And what 
kind of information could you use from the Federal Government 
that might enhance your capabilities of assessing risk?
    In addition to the difficulties associated with access to 
information, measuring terrorism risk is, by its very nature, 
more difficult than measuring the risk of a natural disaster. I 
live in Connecticut and we have hurricanes. Hurricanes have no 
motives--they come, they damage, and they go. But terrorists 
are different. They rely on secrecy and unpredictability to 
accomplish their task and even a seasoned intelligence 
professional with access to our Nation's most compartmented 
secrets may or may not be successful in predicting where 
terrorists will strike.
    In order to play their part in this country's 
counterterrorism mission, private industry must rely on risk 
assessment to determine what kinds of protective measures 
should be taken at their facilities and what kind of insurance 
should be purchased for their most important assets.
    So we look forward today to hearing from our witnesses and 
hope that they can shed further light on how to address some of 
these concerns. I think you all for being here. I thank 
Chairwoman Kelly for calling this important hearing, and I 
yield back.
    Chairwoman Kelly. Thank you. I yield now to the ranking 
member from California.
    Ms. Lofgren. Thank you, Madam Chairwoman, and Chairman 
Simmons. As we know, the Committee on Homeland Security has 
jurisdiction over issues relative to homeland security under 
the House rules and nowhere in the House rules is there an 
explicit or implicit mention of the Committee on Homeland 
Security's jurisdiction over insurance. I am raising this issue 
to point out striking inconsistencies in the interpretation of 
the Committee on Homeland Security's jurisdiction.
    On April 6th of this year, I sent Mr. Simmons and Chairman 
King a letter explaining why I believe that the Committee on 
Homeland Security has jurisdiction over matters involving the 
National Security Agency, homeland security, and potentially 
illegal eavesdropping by the NSA. In an April 25th response to 
my letter, Mr. Simmons and Chairman King disagreed that the 
Committee on Homeland Security had jurisdiction over the 
potentially illegal eavesdropping by the NSA. As Chairman King 
stated in his letter, ``The House rules empower the Committee 
on Homeland Security to review and study on a continuing basis 
all government activities relating to homeland security, 
including the interaction of all departments and agencies with 
the Department of Homeland Security.'' Nevertheless, Chairman 
King seemed to have parsed words to conclude that the Committee 
on Homeland Security does not have jurisdiction over 
eavesdropping by the NSA. It seems to me that if the 
Subcommittee on Intelligence does not have jurisdiction to take 
a look at the NSA and the potential illegal activities that 
they are engaging in, it is quite a stretch to say that we have 
jurisdiction over insurance. So I am hoping, and formally will 
be asking with a later letter, that the issue of review of NSA 
and the Intelligence Subcommittee's jurisdiction be revisited 
by the chairman of the full committee as well as the chairman 
of the subcommittee. And I believe that while this insurance 
issue certainly is of interest to the committee of 
jurisdiction, certainly the committee of jurisdiction over 
intelligence should be taking up the NSA matter. And I yield 
back.
    Chairwoman Kelly. Thank you. I will turn now to the ranking 
member of the full committee, Mr. Frank.
    Mr. Frank. I thank the gentlewoman. And let me say 
preliminarily that I am no longer on the Homeland Security 
Committee because when it became a standing committee in the 
House, by Democratic Caucus rules as the ranking member of this 
full committee, I wasn't eligible to serve, but I was 
interested, and I am supportive of the gentlewoman's concern. I 
would say I think probably the response you would get from some 
quarters is that the reason that the Committee on Homeland 
Security doesn't have any jurisdiction over the NSA wiretapping 
is that in the opinion of the Administration, Congress doesn't 
have any jurisdiction over this. So the lesser is shut out by 
the greater in this case. And if they don't think it is any of 
our business, then it is no committee's business.
    I am pleased that the two committees are working together 
in this hearing. We have too much turf consciousness in this 
Congress and sometimes that gets in the way of substantive 
considerations. I think it is a good idea that we are having 
this joint hearing. And I want to talk particularly about the 
public policy rationale for terrorism risk insurance. I want to 
address some of my friends in the consumer movement, some of 
whom have been critical of this. I was struck, as I read 
through the testimony--because I am not going to be able to 
stay, as we have bills on the Floor from this committee today--
by Mr. Lewis' remarks about the public policy implications 
here. I want to stress that in addition to the argument that 
after all, in many cases when you are the insured, we tell you 
that you have an obligation to reduce your risk. You have an 
obligation to reduce your risk of theft, of fire, and of 
vandalism. However, it is very hard to tell private sector 
people to reduce their risk from terrorism. Now I know they 
try. I wish sometimes they wouldn't. I think it has become a 
sign of ego that you make it hard to get into your building. It 
cannot be that every office building in Washington and New York 
is a target for terrorism, but I think if you don't have 
someone there to harass your visitors, then you feel like you 
are not important. And if no one wants to blow you up, then you 
must not be a big deal, and therefore you have somebody who is 
sitting there and looking at people's driver's licenses to no 
practical effect whatsoever if there was a serious problem.
    But there is nothing you can do to protect yourself against 
being the victim of terrorism. You might be able to mitigate 
the effects somewhat, but that is the minor part of it. And 
that reduces the argument that the cost of this should be borne 
by the insured because you are asking people to bear a cost 
over which they have no control. But even more than that, as 
people have indicated, and the gentleman from Connecticut 
indicated, we are talking here about a situation where there 
are bad people and elements within the United States 
consciously seeking to inflict harm on the United States. To 
the extent that we allow the individual victims to bear the 
cost, we are implicitly cooperating with the terrorists. That 
is, the cost of terrorism ought to be borne by the whole 
country, and we should not allow terrorists to pick and choose 
which Americans are going to bear the cost. We should not allow 
them to say, well, the big cities will be more vulnerable. And, 
again, when you take into account the fact that we have a 
situation where the victims may not have a very good ability to 
stave off the damage and where it is a conscious decision by 
evil people to inflict harm on us, then we ought to all be 
willing to bear the cost. I don't want to have a situation 
where, if a terrorist attacks some place in America, the rest 
of us can say, ``Boy, we sure are lucky that we weren't hit. 
That poor so-and-so has to bear the cost.'' No, let's say that 
America has been attacked and we will together bear the cost of 
that.
    Now, obviously, there are some cases in which you can't do 
that; nobody can share the loss of life or other factors. But 
to the extent that we can make these costs go across the board, 
we ought to do that. Now there is also, of course, a particular 
economic effect, it is not just the whole economy as people 
mentioned, but when we were doing terrorism risk insurance and 
we were encountering, I think, a kind of free market 
fundamentalism, I don't think it is a violation of the 
principles set forward by Adam Smith to take into account a 
phenomenon, terrorist bombings, that he could not possibly have 
known. This is not something that the market was ever intended 
to deal with. But it does not fall equally on the whole 
country. It is obviously particularly a problem for people who 
would be doing large projects in big cities. And I do not think 
we ought to say that in addition to the other problems that 
some of our bigger cities have, that we ought to leave them 
entirely on their own for bearing the cost of terrorism risk 
insurance. And it is very much, as it has been presented to us, 
a big city issue. The Department of Homeland Security's lists 
of terrorist targets notwithstanding, there aren't going to be 
that many amusement parks outside that are going to be 
targeted.
    So I think there was every public policy reason for us to 
go forward with this. It is a national obligation to help 
people respond to a threat that is against the whole Nation and 
against which they cannot be expected themselves to defend. I 
think we did the right thing in going forward with terrorism 
risk insurance. I hope we will put it on a permanent basis and 
those who inaccurately think that this is something that can be 
left to the market when no theory of the market I have ever 
read provides for this kind of phenomenon that we will reject 
their views.
    Thank you, Madam Chairwoman.
    Chairwoman Kelly. Thank you, Mr. Frank. Mr. Garrett.
    Mr. Garrett. Yes, thank you, Madam Chairwoman. I was going 
to do opening remarks but the ranking member raises an 
interesting analysis of how we should be spreading the risk or 
who should be actually bearing it, as to whether it is a risk 
that you can insure against or not. I will just throw out this 
one question because I have also looked through some of your 
testimony, Mr. Ulrich. Risk Management Solutions makes a 
statement, I don't want to preempt your statements here since 
it is a good statement, regarding the terrorist activity, ``It 
isn't a matter of if but when with hurricanes. And it isn't a 
matter of when but how many.'' I think that is an interesting 
analysis to go along with this. But with the ranking member's 
comments, I agree with you as far as the minimalist effect that 
industry or individuals or insurers may do as far as putting 
that individual in front of the store or the business office, 
but on the other hand, there are certain cases where we know 
that elements are a higher risk. Just reading about today in 
New Jersey as to what we can do to protect tanker cars along 
the New Jersey Turnpike and whether the homeland security chief 
there says we should be building walls to protect them so you 
can't see those tanker cars all along the turnpike so you can't 
shoot them or whatever else and blow them up. In certain 
instances, you know that you are at a greater risk than 
somebody else. And from an insurance point of view, (A), should 
there be safety remediations and should risk factors come into 
play in that case; and (B), should we be looking to see whether 
risk premium rates should be higher for some individuals than 
others. Because I see--I will conclude on this--at the bottom 
line, looking at all your testimony, everyone agrees on the 
panel, I think, that some version of TRIA must be there as a 
backstop, but what obligation is there still on the insured in 
these cases, I guess, is my ultimate question?
    Thank you. I yield back.
    Chairwoman Kelly. Thank you, Mr. Garrett. Mr. Moore.
    Mr. Moore of Kansas. I want to thank you, Madam Chairwoman, 
for convening this hearing. I do not have an opening statement. 
I look forward to the testimony of the witnesses. Thank you.
    Chairwoman Kelly. Thank you. Ms. Lowey.
    Mrs. Lowey. Thank you, Madam Chairwoman, and I look forward 
to the testimony of the witnesses, and I will hold my comments 
until that time. Thank you.
    Mr. Gutierrez. Madam Chairwoman, I ask unanimous consent 
that Congressman Israel, who is not a member of the Oversight 
and Investigations Subcommittee, be allowed to participate in 
today's hearings.
    Chairwoman Kelly. So ordered. Mr. Scott?
    Mr. Scott. I think we should get right to the witnesses. I 
will not have an opening statement. Thank you.
    Chairwoman Kelly. Thank you. Mr. Israel?
    Mr. Israel. Thank you, Madam Chairwoman. Let me thank you 
and the ranking member for allowing me to participate in this 
hearing. As was indicated by the ranking member, I am not a 
member of this subcommittee but I did work very closely with 
Chairwoman Kelly on the full Financial Services Committee on 
TRIA, and we were able to arrive at a bipartisan consensus that 
has been helpful. Of course, the clock is ticking. We have 17 
months left and although I very strongly and fully support 
TRIA, and it has been one of my priorities over the past 3 
years, I do not believe that there is much of an appetite to 
give TRIA yet another extension under the terms that it 
currently includes. We need to begin developing consensus now 
because, as we all know, Congress is not known for moving at 
lightning speed. So it is critically important that we begin to 
develop this consensus, and that folks in industry begin to 
weigh in so that we can develop a sensible policy in this 
country.
    The premise of TRIA is quite simple: An attack on this 
country is not an attack on a building. It is an attack on this 
country. It is not an attack on bricks and mortars and glass, 
it is an attack on the lives inside that building. It is not an 
attack on a bunch of companies. It is not an attack on the 
insurance industry. It is an attack on the United States of 
America and its citizens. And the Federal Government does have 
an obligation to help defend against the economic consequences 
of that attack. This is critically important. And I am very 
concerned that we not have deja vu all over again, in the 
immortal words of Yogi Berra, that as we begin to approach the 
deadline where TRIA will in fact expire, at the very last 
minute, suddenly people begin to scramble. That gets very messy 
when you are working against a ticking clock. It gets very 
messy in a climate of partisanship. And so I would strongly 
urge all concerned parties to begin working now, sooner rather 
than later, begin to weigh in with both sides of the aisle on 
the Financial Services Committee so that we can produce a 
product that keeps my constituents and all of my colleagues' 
constituents safe from another attack.
    I want to again thank the chairwoman and the ranking member 
for their hospitality, and I yield back my time.
    Mr. Gutierrez. Madam Chairwoman, I ask unanimous consent 
that Congressman Crowley be allowed to participate in the 
hearing.
    Mr. Crowley. Thank you, Madam Chairwoman. I also want to 
thank you and the ranking member for holding this hearing. I 
think it is important that we get this right. It is too 
important for industry, not only in my city but throughout this 
country, that terrorism risk insurance and a way forward with a 
Federal backstop that is workable, that is something that 
encompasses the needs of industry as well as developers to do 
the work that they need to do to keep our economy viable. And I 
thank you for holding this hearing today and look forward to 
hearing the testimony this morning.
    Chairwoman Kelly. Thank you very much. We turn now to our 
witnesses.
    Terry Fleming is the director of Risk Management for 
Montgomery County, Maryland. The county's self-insurance 
program provides property and casualty coverage for 14 agencies 
covering more than 40,000 employees. Mr. Fleming and the 
county's self-insurance program have been recognized as 
reputational leaders by the American City and County Magazine. 
Mr. Fleming has over 35 years experience in insurance and risk 
management in the public and private sectors.
    Peter Ulrich is the senior vice president of RMS' model 
management team. He has been with RMS since 1993. Prior to 
joining RMS, Peter spent 8 years with Peterson Consulting. 
Peter earned a B.S. in accounting and finance from the 
University of California at Berkeley and a MBA from the 
University of Southern California.
    Jeff DeBoer is president and CEO of the Real Estate 
Roundtable, an organization that represents the leadership of 
the Nation's top 100 privately owned and publicly-held real 
estate ownership development, lending, and management firms, as 
well as the elected leaders of the 15 major national real 
estate industry trade associations. He also serves as co-
chairman of the advisory board of the Rand Corporation's Center 
for Terrorism Risk Management Policy and is chairman of the 
National Real Estate Organizations, a coalition of real estate 
trade associations working together to enhance the coordination 
of the industry's overall Washington advocacy efforts. A native 
of Rapid City, South Dakota, Mr. DeBoer has earned a law degree 
from Washington and Lee University in Lexington, Virginia, and 
an undergraduate degree from Yankton College in Yankton, South 
Dakota.
    And finally, Christopher M. Lewis. I am going to yield to 
the gentleman from Connecticut, for the purpose of introducing 
our final witness.
    Mr. Simmons. I thank the Chair for that courtesy. And I am 
especially pleased today that Chris Lewis is with us to testify 
at this hearing. Mr. Lewis is the vice president of Alternative 
Market Solutions and Capital Management at the Hartford 
Financial Services Group and lives in the wonderful town of 
Tolland, Connecticut, which I am pleased to represent. He is 
also responsible for the Hartford's risk management initiatives 
and works with policymakers on issues related to the risk of 
manmade and natural disasters. Prior to joining The Hartford, 
Mr. Lewis was managing director and global head of Advisory 
Services for Fitch Risk Management, and he also spent 5 years 
as a senior economist at the Office of Management and Budget 
where he was a member of the White House Working Group on 
Natural Disasters. Welcome, Chris. We look forward to your 
testimony.
    Chairwoman Kelly. Thank you. Now, without objection, the 
witnesses' written statements will be made a part of the 
record, and you are each going to be recognized for a 5-minute 
summary of your testimony. I believe all of you understand the 
function of the small black box with the lights on the table. 
Please note that the red light doesn't mean sum up, it means 
that it is time to finish your 5-minute statement. With that, 
we turn first to you, Mr. Fleming. And thank you all for being 
here.

STATEMENT OF TERRY FLEMING, DIRECTOR OF EXTERNAL AFFAIRS, RISK 
                AND INSURANCE MANAGEMENT SOCIETY

    Mr. Fleming. Chairwoman Kelly, Chairman Simmons, and 
members of the subcommittees, good morning. My name is Terry 
Fleming. I am a director of External Affairs for the Risk and 
Insurance Management Society, RIMS, and I am also director of 
risk management for Montgomery County, Maryland. I am pleased 
to be here today to talk about terrorism concerns and the 
insurance market, particularly from a risk management 
perspective.
    RIMS represents commercial consumers of insurance. As the 
country's largest professional risk management organization, 
RIMS represents nearly 4,000 industrial, service, non-profit, 
charitable, and governmental entities, including 83 percent of 
the Fortune 500 companies. As a risk manager, it is my 
responsibility to identify exposures to financial loss that my 
employer might suffer and to mitigate those exposures using a 
variety of techniques. The principal techniques used to manage 
the terrorism exposure on the part of an individual company or 
self-insured entity are control--taking steps internally to 
reduce the threat to employees and property; retention or self-
funding a portion of any loss; and the purchase of commercial 
insurance.
    Prior to September 11, 2001, terrorism was a mere blip on 
the radar screen for risk managers. We were certainly aware of 
the Oklahoma City bombing and previous attacks on the World 
Trade Center. But terrorism was not an issue prior to 9/11 
quite simply because it was covered by virtually every 
insurance policy that was issued. After 9/11, it was covered by 
virtually no insurance policies until the enacting of the 
Terrorism Risk Insurance Act. And while I understand that this 
meeting is not specifically about TRIA, any discussion about 
terrorism and insurance must include the recognition that TRIA 
is vitally important to business and the economy. It is only 
because of TRIA that the insurance market calmed down and 
businesses can obtain terrorism insurance at affordable rates. 
As explained in detail in our written statement, unless a 
permanent solution to the terrorism risk is developed and 
implemented prior to the sunset of TRIA, there will be a 
significant impact on the economy.
    Along these lines, RIMS recently conducted an informal 
survey of its membership asking about terrorism insurance 
coverage to get an idea of current market conditions. Eighty-
six percent of respondents to our survey said that if TRIA or 
some other Federal backstop were not in place, they do not 
believe that they would be able to obtain sufficient coverage 
for acts of terrorism at affordable prices. Eighty-two percent 
said that coverage should be available for nuclear, biological, 
chemical, and radiological--the so-called NBCR exposures. But 
91 percent said they do not have coverage for this currently. 
Coverage for NBCR exposures is typically excluded from 
commercial insurance policies with the notable exception of 
worker's compensation insurance.
    As an indicator of what might be expected if a TRIA-like 
program were not in effect, 75 percent of our member 
respondents said that prior to the extension of TRIA, their 
insurance policies contained coverage conditioned on the 
extension of TRIA. Seventy-six percent stated that they believe 
the terrorism coverage limits would have been decreased had 
TRIA not been extended, and 82 percent believe their insurance 
premiums would have increased. In this regard, for example, one 
of our members reported that insurance premiums for a property 
they own in a large metropolitan area went from $200,000 in 
2005, to $500,000 in 2006, with a reduction in policy limits. 
Furthermore, the member's insurance broker has stated that 
insurance companies are unwilling to commit to insuring 
construction projects with terrorism coverage if the completion 
date goes beyond December 31, 2007, the sunset date of TRIA.
    RIMS believes that it is critical that a program be 
developed to ensure continued coverage for acts of terrorism, 
including NBCR coverage, and our written statement itemizes the 
principles that we think should apply to the development of a 
long-term solution.
    Thank you for the opportunity to testify on this extremely 
important issue. RIMS appreciates your committees holding this 
joint hearing and looks forward to working with you to address 
the issue of terrorism and insurance. Thank you.
    [The prepared statement of Mr. Fleming can be found on page 
48 of the appendix.]
    Chairwoman Kelly. Thank you very much, Mr. Fleming.
    Mr. Ulrich.

    STATEMENT OF PETER ULRICH, SENIOR VICE PRESIDENT, MODEL 
          MANAGEMENT, RISK MANAGEMENT SOLUTIONS, INC.

    Mr. Ulrich. Thank you for the opportunity to testify here 
today. For those of you who do not know who Risk Management 
Solutions is, RMS is the world's leading provider of technology 
and services for the managing of catastrophic risk, both 
natural perils, such as earthquakes and hurricanes, as well as 
terrorism risks. We first released our terrorism model in 2002 
and today have over 100 insurers and re-insurers actively using 
the model to manage risk.
    Just to clarify what a terrorism model is, we do not try to 
predict the time and place of the next terrorist attack. What 
we do--for a location or portfolio of hundreds of thousands of 
locations, we assess the likelihood that any of those may 
sustain property, business interruption damage, or human 
casualties under a spectrum of possible terrorist attacks from 
small bombs to large truck bombs, airplane hijackings, nuclear 
power plant sabotage, or CBRN attacks. And our model is built 
totally with open source information, which I understand about 
80 percent of intelligence information is open source today. 
But the types of sources we rely on are, for example, we have a 
statistical database of over 20,000 terrorist attacks around 
the world since 2001. Over 1,000 of these are what we would 
call macro attacks, car bombs or larger. And focusing on 
Jihadist attacks in this database, you can see that 45 percent 
of the attacks around the world come against the major 
political or economic capital of the country, a New York or 
Washington, D.C., type city. If you look at the top five cities 
where attacks occur, that is 67 percent of the likelihood. 
Looking at this database, you can also see the types of weapons 
used. For example, over 75 percent of the attacks around the 
world are improvised explosion devices, IED's. You can also see 
the distribution of small bombs versus large bombs. The types 
of attacks the jihadists prefer is at government buildings, 
hotels, infrastructure, and train stations. This is all 
valuable information that is available.
    We also look at academic literature on the motivation and 
objectives of the terrorist threat groups. We work with weapons 
experts on understanding the cost and logistics of the 
different attack modes. How hard is it to build a two ton bomb? 
How hard is it to get it to detonate efficiently? If you want 
to sabotage a nuclear power plant, what kind of skills do you 
need? How realistic a threat is that?
    And, finally, we also rely on expert opinion. We have 
formed a group of some of the world's leading experts in 
terrorism threats to help advise us on understanding current 
trends, people like Bruce Hoffman, Rohan Guneratna, and Magnus 
Ranstorp, who are all key advisers to the U.S. Government. We 
have not had access to any classified information and, frankly, 
the most sensitive information probably wouldn't help us. We 
don't need to know that you have someone under surveillance at 
123 Main Street in San Francisco. Classified information is the 
big unknown. I don't know what you have that we aren't privy 
to, but if I had a wish list, the type of things that would be 
helpful would be information on interdicted attacks that is not 
public domain. For example, how many attacks have been stopped 
that the public is not aware of, what types of targets were 
they after, what type of weapons were they planning to use, how 
many terrorists were involved, how close to success did they 
come, and how were they caught? Any indication of change in MO. 
Al Qaeda has been very focused on very low frequency, high 
severity attacks, spectacular attacks, such as the World Trade 
Center, that had a spectacular impact, high economic loss, high 
human casualties, and great symbolic value. If they want to 
change to where they are going to have 100 people go out into 
the public with explosive vests and there is intelligence that 
indicates that, that would be very helpful to us.
    Finally, capability assessments. There is certainly 
information out there about how there are nuclear warheads 
unaccounted for from the former Soviet Union. And if it was 
confirmed that, yes, they are missing, and they are in fact in 
the hands of terrorists, that would be very helpful information 
to know. Other information might just be intelligence on the 
effectiveness of our border security, land borders, air 
borders, sea, and cargo shipments, as well as security ratings 
of various cities or individual targets. And all this would 
help improve the models and reduce uncertainty in the models.
    And on the topic of uncertainty, I was asked to comment on 
the uncertainty of terrorism versus natural catastrophe. I 
think it is interesting that last year there were 27 named 
storms in the Atlantic Basin, unprecedented, whereas with 
terrorism there has not been a terrorist attack since 9/11. And 
it is partly controllable. If you tried to hijack a plane after 
9/11, you couldn't do it the next day because there were no 
planes flying. And eventually if there was a successful attack, 
the United States does have the ability to raise defenses. And 
you can bet that it would not be possible to hijack a plane 
again.
    So with that, I will close. Thank you.
    [The prepared statement of Mr. Ulrich can be found on page 
70 of the appendix.]
    Chairwoman Kelly. Thank you very much.
    Mr. DeBoer?

  STATEMENT OF JEFFREY D. DeBOER, PRESIDENT AND CEO, THE REAL 
                       ESTATE ROUNDTABLE

    Mr. DeBoer. Thank you, and good morning, Chairwoman Kelly, 
Chairman Simmons, and members of the two subcommittees. Thank 
you very much for holding this joint hearing today. My name is 
Jeff DeBoer, and I am president and CEO of the Real Estate 
Roundtable. As was mentioned, I also serve as co-chair of the 
Advisory Board for the Rand Center for Terrorism Risk 
Management. I am also chairman of the Real Estate Information 
Sharing and Analysis Center or ISAC, and I participate as a 
steering committee member for the Coalition to Insure Against 
Terrorism.
    From the policyholder perspective, obtaining terrorism 
insurance is critical to developing, financing, and 
transferring business property. The amount of needed terror 
insurance is dictated by lenders and by rating agencies. They 
have historically taken the position that all risk coverage 
requires terrorism insurance. Loan amounts must be covered by 
terror insurance to be approved and bond issuance must have 
adequate terror insurance to be attractively rated. And this 
view has been supported by the courts and it in effect creates 
a high demand for this product. Without terrorism insurance, we 
believe economic transactions will be smothered and jobs will 
be at risk. A Real Estate Roundtable survey taken in the post-
9/1l, pre-TRIA days indicated that about $15 billion worth of 
real estate transactions had been stalled or completely 
canceled nationwide. The Council of Economic Advisors at the 
time stated approximately 300,000 jobs were lost during this 
period. Almost overnight, it is worth remembering, upon 
enactment, TRIA filled the re-insurance crater. Insurance 
capacity returned and transactions resumed. In particular, 
stalled construction projects moved forward to the benefit of 
countless workers in the construction trades.
    Today, I would like to say that demand for terrorism 
insurance is extraordinary. Studies of take-up rates show a 
higher terror take-up rate than the take-up rate in almost any 
other product where Federal or State Government is providing a 
capacity backstop in effect. And that includes flood, crop, 
earthquake, or previous riot and crime control programs. A 
Mortgage Banker's Association survey has revealed that about 84 
percent of commercial loans surveyed had terror insurance in 
place. I am sometimes asked, who is buying this coverage? 
Financial institutions, real estate firms, and health care 
facilities have the highest take-up rates. But right behind 
them are media companies, education institutions, energy 
companies, and transportation firms.
    Having said that, Roundtable members today report to me 
that the insurance markets are increasingly difficult. The 
multiple catastrophic exposures of hurricane, flood, wind, and 
earthquake, on top of terrorism, plus the high retention rates 
of TRIA and the pending expiration date that has been 
mentioned, have caused many insurers who are concerned about 
aggregation risks to leave markets.
    Also, as has been mentioned, according to a Moody's report, 
a high percentage of all policies written prior to TRIA's 
enactment contained the springing exclusions, which would 
automatically void coverage if TRIA had not been done on 
January 1, 2006. This is happening again in the marketplace. 
Businesses now shopping for policies that run past 2007 year 
end are being once again asked to accept these springing 
exclusions. We believe this is strong evidence that without 
Federal involvement, insurance availability would drop 
substantially.
    The ultimate victims of all of this, of no Federal program, 
would not be the insurance industry, although they are 
frequently talked about, it would be the American economy; it 
would be bond holders, pension investors, and jobs. America's 
industries are highly concerned with nuclear, biological, 
chemical, and radiological exposures. Even though TRIA does 
cover these perils, we see no evidence in the marketplace today 
that this is being written except where mandated in worker's 
compensation coverage.
    Regarding risk mitigation, I share many of the concerns 
that Mr. Frank mentioned. Having said that, however, the 
industry is spending large sums on security measures. It is 
important to note also that terrorism risk management strategy 
is now at the board level for large-scale property owners. 
Building tenants are being urged to have emergency protocols 
and owners are urging all tenants to coordinate their plans 
within the buildings.
    Our industry has also undertaken an unprecedented multi-
sector initiative to share information on related terror risks. 
I would conclude on this point by saying that our industry 
standard benchmarking reference shows that the industry as a 
whole is spending about 20 percent more on security related 
measures than they were pre-9/11.
    But mitigation is not enough nor is it being appropriately 
reflected in insurance premiums. A long-term policy solution to 
this long-term risk must be found. TRIA and TRIEA both have 
been good programs, and perhaps they can be extended, but they 
are not the only potential answer. I would invite you to look 
at a program that we have attached to our statement.
    In conclusion, without Federal involvement, we don't think 
there will be adequate insurance capacity to protect the 
economy in the face of a terrorist attack or to allow an 
economy to recover after an attack.
    Thank you again for the opportunity to be with you this 
morning.
    [The prepared statement of Mr. DeBoer can be found on page 
30 of the appendix.]
    Chairwoman Kelly. Thank you, Mr. DeBoer.
    Mr. Lewis.

STATEMENT OF CHRISTOPHER M. LEWIS, VICE PRESIDENT, ALTERNATIVE 
    MARKET SOLUTIONS, P&C CAPITAL MANAGEMENT, THE HARTFORD 
                 FINANCIAL SERVICES GROUP, INC.

    Mr. Lewis. Thank you. Chairwoman Kelly, Chairman Simmons, 
Ranking Member Gutierrez, Ranking Member Lofgren, and members 
of the subcommittees, thank you for the opportunity to appear 
before you today to discuss the challenging issue of managing 
the threat of terrorism to the U.S. economy. My goal today is 
to provide perspective on the difficulties faced by the 
insurance industry as financial intermediaries helping 
companies to pool and manage risks, including the risk of 
terrorism. If it pleases the subcommittees, I will submit my 
full testimony in writing for the record and restrict my oral 
testimony to a summary of two key observations.
    First, terrorism is an uninsurable risk. Terrorism fails to 
meet the fundamental requirements for insurance. The risk of 
terrorism does not impact policyholders in a manner that is 
homogeneous, random, and independent across other 
policyholders. Moreover, the risk of terrorism is not well 
understood. Unlike the case of natural catastrophes, the 
insurance industry has no credible data or models that can be 
used to quantify the likelihood of a terrorism attack, the form 
of such an attack, and the location at which such an attack 
could take place. As a result, the industry cannot effectively 
price terrorism insurance and is forced to manage the risk of 
terrorism through exposure limits on entire commercial 
policies, often to the detriment of our policyholders.
    Second, the disappearance of Federal terrorism re-insurance 
could result in major coverage disruptions for policyholders. 
To see this, we need look no farther than the largely 
unregulated markets for traditional re-insurance and capital 
market insurance securitizations. Despite extremely high 
primary insurance company retentions under TRIA, the 
traditional reinsurance market has restricted reinsurance 
capacity for terrorism to de minimis levels. We have virtually 
no coverage provided where it counts, for terrorist losses 
caused by nuclear, biological, chemical, or radiological 
weapons.
    In the area of insurance link securitization, I can assure 
the subcommittees that virtually no meaningful capacity exists 
today to securitize terrorism risk. Having established and 
maintained an insurance link securitization program for natural 
catastrophes since 2004, The Hartford has spent considerable 
time and energy attempting to leverage this technology to help 
finance the risk of terrorism. Not surprisingly, the same 
obstacles that impede the insurability of terrorism for the 
primary insurance and the reinsurance companies are preventing 
the development of an insurance link securitization market for 
terrorism. Therefore, in conclusion, I firmly believe that any 
credible solution for financing the risk of terrorism in the 
U.S. economy will require a continued partnership between the 
private insurance industry and the Federal Government.
    Thank you.
    [The prepared statement of Mr. Lewis can be found on page 
66 of the appendix.]
    Chairwoman Kelly. Thank you, Mr. Lewis. I ask unanimous 
consent that the statements of the Independent Insurance Agents 
and Brokers of America, the Rand Corporation, and the American 
Insurance Association be entered into the record. So moved.
    I would like just a yes or a no answer from each member of 
the panel to the following question: Do you believe that the 
threat of terrorism increases or decreases as we move away from 
9/11? Just say increase or decrease, so I have some kind of 
picture of what your thinking is. Mr. Fleming?
    Mr. Fleming. Increase.
    Chairwoman Kelly. Mr. Ulrich? Real simple, one word.
    Mr. Ulrich. Increase.
    Chairwoman Kelly. Mr. DeBoer?
    Mr. DeBoer. Given those two choices, increase.
    Mr. Lewis. Same, increase.
    Chairwoman Kelly. Well, we will get to the nuances now. I 
would like to ask you whether a distinction between foreign and 
domestically-inspired acts of terror is meaningful from a risk 
assessment point of view? Mr. Fleming?
    Mr. Fleming. RIMS believes that the distinction should be 
eliminated. Just looking at what happened in England last 
summer, they were homegrown terrorists but citizens of Great 
Britain, and we are concerned that the same kind of situation 
is going to occur here. If it happened in America, the 
distinction may have eliminated coverage under TRIA if they 
were homegrown domestic terrorists.
    Chairwoman Kelly. Thank you. Mr. Ulrich?
    Mr. Ulrich. From a threat standpoint, there is an extreme 
difference between the foreign threat and the domestic threat.
    Chairwoman Kelly. Would you like to elaborate on that?
    Mr. Ulrich. Well, there is no reason to believe right now 
that there is a Timothy McVeigh lurking out there right now but 
Al Qaeda has stated that they want to attack the United States. 
So the domestic threat exists but it is relatively minor. It is 
mostly people like the Animal Liberation Front, and the Earth 
Liberation Front, who are more after publicity than massive 
destruction, while Al Qaeda's objectives are to create as much 
havoc and destruction as possible.
    Chairwoman Kelly. Mr. DeBoer?
    Mr. DeBoer. I think asking the Secretary of the Treasury to 
make a distinction of whether an act has been perpetrated by a 
foreign movement or by a domestic movement is artificial and 
irrelevant, and I think it should be eliminated.
    Chairwoman Kelly. And I think it should be eliminated. Mr. 
Lewis?
    Mr. Lewis. I think given events overseas and trends that we 
see in the overall threat assessment, it is going to be 
increasingly difficult to distinguish whether or not an event 
is a certified or non-certified event. And I think the 
distinction is no longer going to be relevant going forward.
    Chairwoman Kelly. Thank you. Terrorists assess the 
likelihood of completing an attack and the amount of damage 
they will cause when selecting targets. So, consequently, pre-
attack mitigation can help deter attacks or change the target 
set. Where do you think Congress can do more to encourage pre-
attack measures in the private sector? Mr. Fleming?
    Mr. Fleming. Well, the Federal Government has been very 
supportive of local governments in this area. Montgomery County 
has received a number of grants, helping us to harden our 
buildings, and to make people more aware of terrorism. I think 
that the Federal support, as more targets, the softer targets, 
become recognized by the people who are identifying exposures 
to terrorism coverage, that it needs to trickle down to a much 
bigger part of the economy.
    Chairwoman Kelly. Mr. Ulrich?
    Mr. Ulrich. They can help by prioritizing spending on the 
targets at greatest risk. But it is important to note that 
terrorism risk is like a balloon where if you squeeze the risk 
in one place, it pops out somewhere else. So as you protect one 
target, it just makes a neighboring target that is unprotected 
more likely to be attacked.
    Chairwoman Kelly. So you would think that we should 
encourage pre-attack measures everywhere?
    Mr. Ulrich. Not everywhere, starting with the high-priority 
targets, the targets at greatest risk.
    Chairwoman Kelly. Risk assessed?
    Mr. Ulrich. Yes.
    Chairwoman Kelly. Okay, thank you. Mr. DeBoer?
    Mr. DeBoer. Well, mitigation is a big concern of the real 
estate industry and, as I mentioned, we have, as an industry, 
spent substantial sums already on security personnel, barriers, 
other surveillance techniques. Our HVAC systems are now much 
more secure than they were before and the industry is spending 
a huge amount, both at the board level and on the ground making 
things more secure.
    Having said that, I think the most important thing, and it 
was mentioned earlier, I think by Chairman Simmons, and that 
has to do with information. What could mitigate the risk for a 
lot of buildings and building owners and their tenants is a 
proper flow of information from the Federal Government through 
the ISAC system back down to the ground.
    Chairwoman Kelly. Mr. Lewis?
    Mr. Lewis. I think when assessing the threat of terrorism, 
it is important to keep in mind the interdependent nature of 
the terrorist threat so that for any given property, while you 
could try to harden that property, you can't harden the 
property next door where if a terrorist attack occurs there, it 
is still damaging your property. So it is a challenge to try to 
establish effective mitigation for such a wide ranging threat 
that is dynamically evolving. I am not qualified to understand 
where the government should align its resources to counter 
terrorism based on the information that they have. I just think 
it is important to keep in mind the dynamic nature of that 
threat.
    Chairwoman Kelly. Thank you. I am out of time. I turn now 
to Mr. Gutierrez.
    Mr. Gutierrez. Thank you. The first question is for Mr. 
DeBoer. The Real Estate Roundtable's proposal to create a 
Homeland Security mutual pool is an idea that I believe 
deserves some consideration. I want your assurance, however, 
that you do not anticipate any direct appropriation for this 
program. Another concern I have is the creation of another even 
larger GSE-type organization that creates a ``two big to bail 
problem.'' Would you please address that issue?
    Mr. DeBoer. Well, the appropriation issue, the way that 
this program would be funded would be by assessments of all 
insurance companies up-front, and then an ongoing assessment 
for insurers who want to participate in the program, and they 
pay a premium to get it up and running. To the extent that 
there is an appropriation, there is probably going to have to 
be a backstop continued during the early years while that pool 
builds up. So in effect, as the pool builds up, the backstop 
stands down, to coin a phrase. So there is not any direct 
appropriation involved. Obviously, over a period of time the 
pool would be built up, and we would anticipate that building 
up to $30- or $35 billion would provide the kind of layer that 
needs to exist between the taxpayer and loss coverage. Above 
that amount, I think that most everyone would admit that it 
gets to be a catastrophic loss, and the Federal Government is 
probably going to have step in. But, no, we are not talking 
about a GSE. We are not talking about too big to fail. We are 
not talking about an appropriation.
    Mr. Gutierrez. Thank you. Mr. Ulrich, in your testimony you 
proposed adding intelligence information to risk modeling to 
produce greater accuracy. This raises many red flags, for 
instance you mentioned the need for careful management of real 
time intelligence information to avoid what you refer to as a 
commercial asymmetry. That may be true, but I have other 
concerns. If real time information is made available to many 
different entities, how can we possibly expect this information 
not to be made public? Even if we don't allow real time 
information to be used by the insurance industry, how do you 
propose to protect the information in general?
    Mr. Ulrich. That is a very good question. Our models are 
used by insurers around the world, so if it is incorporated 
into our model, it would essentially become public information. 
I think it would require that classified information become 
declassified because we couldn't protect it, since people would 
be using it.
    Mr. Gutierrez. Mr. Lewis, you seem to be the most 
pessimistic of our witnesses regarding the ability to 
accurately assess terrorism risks. Mr. Ulrich, on the other 
hand, seems to have a little more confidence in our ability to 
predict and assess risks. In his testimony, Mr. Ulrich proposes 
that declassifying of certain information or even allowing the 
industry access to classified information would allow the 
industry to improve its model. Do you agree with this 
proposition? If so, would such a move substantially increase 
your confidence in the models? If you disagree, what, if 
anything, can be done to improve the reliability of predictive 
models?
    Mr. Lewis. Thank you. That is a very good question. Not 
knowing the classified information that exists, it is difficult 
to comment on what value that information would add. I think it 
is important though that even if that information, at a certain 
point in time, helps us to understand the nature of the risk at 
that point in time, as we have discussed, the nature of the 
terrorist threat is constantly evolving and changing. So as 
soon as we know how to protect against a certain type of 
attack, the terrorists change their attack modes; they change 
the delivery mechanisms to bypass that. So I am still 
challenged to understand how having that information could 
create materially more confidence in our ability to understand 
and price for the threat of terrorism. Clearly, more 
information is generally good, we have seen that on the 
hurricanes side with respect to cooperation with NOAA. But I 
still don't see with respect to the threat of terrorism, given 
its dynamic nature, how much further along that actually pushes 
us.
    Mr. Gutierrez. Mr. Ulrich, do you have anything to add to 
the comment just made by Mr. Lewis?
    Mr. Ulrich. No, I would agree that until I saw what 
information was available, classified information that could be 
made available, I would be unable to tell you what kind of 
changes would go to the model.
    Mr. Gutierrez. That is fair. Mr. Fleming, in your testimony 
you state that it is unreasonable to expect that the insurance 
market is going to respond to the need for terrorism insurance 
when it is having difficulty responding to the need for more 
predictable risk, like natural disasters. This sounds like you 
believe that the Federal Government will be the permanent re-
insurer of terrorism risks. Is that the case? And do you 
believe that a voluntary mutual re-insurance entity, as 
proposed by The Real Estate Roundtable, might work in shifting 
the primary backstop burden away from the Federal Government?
    Mr. Fleming. RIMS believes that the private insurance 
market is not capable of responding by itself and that there 
needs to be some form of either a public/private partnership or 
some form of a backstop.
    I was in a meeting recently with some senior underwriters 
from the largest insurance companies. They indicated that the 
capacity in today's market is anywhere between $60- and $85 
billion to respond to a terrorist attack or any catastrophe. 
Obviously, looking at Hurricane Katrina, we are approaching the 
$60 billion range and much of that damage was uninsured and 
backed up by the Federal Government. So we are of the opinion--
and in the event that the insurance market had to pay for a 
catastrophe to the magnitude of $60 to $85 billion, it would 
put some companies out of business and they would be unable to 
pay claims for other types of coverage. So we think that a 
public/private partnership or some form of Federal backstop is 
required.
    Mr. Gutierrez. I thank all of the witnesses.
    Chairwoman Kelly. Thank you. Chairman Simmons.
    Mr. Simmons. Again, I would like to thank Chairwoman Kelly 
and Ranking Member Gutierrez for inviting our subcommittee to 
participate in this very interesting and important hearing. The 
Subcommittee on Intelligence has among its responsibilities to 
oversee the Department of Homeland Security for a terrorism-
related threat, vulnerability, and risk analysis, and also the 
integration, analysis, and dissemination of Homeland Security 
information to public and private sector entities. And that 
would be the focus of my questions. Is the insurance industry 
at this point in time receiving any dissemination of terrorism 
risk related reporting from the Department of Homeland 
Security? If not, should they? If not, should we be focusing on 
some mechanism where this new component of our government, this 
new agency of our government, with this new and important 
mission should be reaching out to your industry as a private 
sector entity to assist in the analyses that you conduct? Any 
of the witnesses can respond.
    Mr. Ulrich. I can't speak for the insurance industry 
because I am not part of it but we certainly make great efforts 
to disseminate all the information we gather through our work 
with various terrorism experts--changes in threat, what type of 
attack modes to expect, and the likelihood of attack. And we do 
that through seminars for all our clients and in quarterly 
bulletins that we send out. So we do attempt to disseminate.
    Mr. Simmons. But what are you getting from the Department 
of Homeland Security, if anything? And, if not, should you be 
getting something from them?
    Mr. Ulrich. We do not get anything from DHS.
    Mr. Simmons. Any of the other witnesses get anything from 
the Department of Homeland Security?
    Mr. DeBoer. Yes, sir, in the real estate industry we have 
an ISAC that involves the 15 major real estate trade 
associations, as well as the facility managers group from 
around the country and stadium operators and so forth. We have 
an ongoing relationship with the Department of Homeland 
Security. We get information from them on a regular basis. In 
some ways, it is almost too much information. We receive 
bulletins, alerts, and so forth almost daily. We then 
disseminate that information out to the industry. We send 
things sometimes to hundreds of thousands of people about 
certain information that comes from the Homeland Security 
Department.
    If I had a criticism, I might say that some of the 
information is almost too general, too broad to be of any use. 
Some of our members respond--and I don't want to be too 
pejorative here--but almost treat it as spam in the sense that 
you get so much information, what is really relevant? So our 
message on this front, Mr. Chairman, is more relevance, more 
timely information, more actionable information, if you will.
    Mr. Simmons. Then if I could follow-up on that a little 
bit. Is this information classified, unclassified, sensitive 
but unclassified, official use only; what is the nature?
    Mr. DeBoer. A variety of all of the above. We do have two 
staff people who have received clearance, and they do get 
information that would not then be disseminated outward. But 
most of this information is unclassified--sensitive 
information, I guess is what you would call it.
    Mr. Simmons. Anybody else?
    Mr. Lewis. Just to further elaborate on that. We do get a 
lot of information. It is all open source information that we 
get. And for the most part, we rely on outside modeling 
experts, including RMS, to try to translate that information 
into something that is in fact actionable that we can actually 
use to support the management of the terrorist risk ourselves.
    Mr. Simmons. And in the information that you receive, is 
there any value in incorporating any of this into your 
modeling?
    Mr. Ulrich. We use information from all sources. A lot of 
the experts we work with are privy to classified information. 
They obviously don't turn that over to us, but it certainly 
helps them to form their opinions, and then that is 
incorporated into our model.
    Mr. Simmons. And you said, Mr. Ulrich, on page 5 that there 
are two options available to you. One is declassifying the 
information, and the other is extending security clearances to 
those people who do your modeling. Which do you prefer?
    Mr. Ulrich. Declassifying the information. I don't know the 
logistical challenge between giving everybody security 
clearance and maintaining the classified nature of the data, I 
don't know if that would be possible.
    Mr. Simmons. And do any of your people have security 
clearances?
    Mr. Ulrich. Not that I am aware of.
    Mr. Simmons. Thank you.
    Chairwoman Kelly. Thank you. Ms. Lofgren?
    Ms. Lofgren. Thank you. I am reminded that there are really 
two kinds of information, at least, that can come out of the 
Department of Homeland Security. One is the information that is 
gathered primarily not by DHS but accumulated, analyzed, and 
disseminated about threats that we learned. But the other is 
something that is more ongoing. What steps can we take to 
mitigate those vulnerabilities? And I think all of us saw the 
newspaper articles in the last several weeks about the popcorn 
factory that made it onto a list and the mule run and the flea 
markets and the like. And I remember last year we had a 
miniature golf course that made it on the list in my district. 
And although people teased about that, we recently had a 
briefing on it and obviously it was classified so I will not 
discuss that briefing at all. But I will say as a general 
matter, that there are really two things, and I think we have 
seriously mishandled this. One is the critical infrastructure 
of the United States and the other is just the National Asset 
Database, basically a dump truck that lists every supermarket, 
lists every check cashing office or the like, and the two are 
not the same. As I listened to you, Mr. Ulrich, it seems to me 
that you may have actually, and this is a question not a 
statement, gotten farther towards mapping the critical 
infrastructure of the United States than the Department of 
Homeland Security. Can you really let us know in a general way 
whether you have mapped out, for example, the cyber issues and 
the utility issues and the like that would make up the critical 
infrastructure of the United States?
    Mr. Ulrich. Yes, well, we have a very different target list 
in our model. We have a very small list, in fact it is only 
about 3,800 targets in the whole country, so I hope we don't 
have petting zoos and miniature golf courses on ours.
    Ms. Lofgren. Correct.
    Mr. Ulrich. We are much more focused on targets of extreme 
high value or dense population. So we have gone through that, 
and we continue to go through that, and that is the type of 
thing we look through attacks around the world to see what are 
the trends. The Madrid bombing was a great example of--it was 
very successful so you expect to see that kind of thing again. 
So we prioritized train stations and subway stations. And, sure 
enough, you saw that attack occur again in London. So that is 
the way we use that information to prioritize.
    Ms. Lofgren. This is proprietary but I wonder have you 
shared this with the Department of Homeland Security? Maybe we 
could get some help from you.
    Mr. Ulrich. We would be happy to. We don't publish it 
because our model is essentially a terrorism optimization 
model.
    Ms. Lofgren. Right.
    Mr. Ulrich. It tells the terrorists where to go attack but 
we would be happy to work with you on that.
    Ms. Lofgren. Well, I may follow-up with you if I could on 
that. I want to talk a little bit about cyber security. A 
number of years ago when cyber was still in the White House, 
there was a national strategy to secure cyberspace. And some 
have criticized that it is not being ambitious enough but the 
truth is here we are it is 2006, towards the end, we haven't 
implemented the strategy. There is really nobody in charge at 
the Department of Homeland Security. With a strong bipartisan 
effort a few years ago, we pushed to get an assistant secretary 
for cyber security so somebody would be paying attention. That 
position has never been filled. It is over a year that it has 
been empty. And so we really haven't done anything on cyber, 
and I continue to believe--I represent Silicon Valley, we have 
some very substantial vulnerabilities. And certainly industries 
that are outside of the high-tech space have recently contacted 
me very concerned of the vulnerabilities that exist. Is that 
something that you have taken a look at in terms of our cyber 
vulnerabilities and is it something that--any of you if you 
could answer--that you might be able to move us forward on 
through an insurance mechanism?
    Mr. Ulrich. Well, the short answer is we haven't looked at 
it, not from a lack of interest but it definitely does not fit 
into the mold, the Al Qaeda desired attack is something where 
there is massive destruction of property and human casualties.
    Ms. Lofgren. Well, you could destroy lots of property with 
it.
    Mr. Ulrich. Right, it is in a very different way. And we 
have talked to experts about it. There is a question of whether 
the skills are there.
    Ms. Lofgren. They are for sale.
    Mr. Ulrich. And certainly their funding terrorist 
activities through petty theft of credit cards and all. So 
there is a lot of that going on but we have not pursued further 
the potential for cyber terrorism.
    Ms. Lofgren. I see my time has expired, Madam Chairwoman.
    Chairwoman Kelly. Thank you. Ms. Jackson Lee.
    Ms. Jackson Lee. Thank you very much, Madam Chairwoman, and 
thank you very much for the invitation to this hearing. I would 
be interested in tracking the same line of questioning. We have 
spent every day since 9/11, and many of course have spent that 
time before 9/11, concerned about preventative measures. There 
was much second-guessing after 9/11 and one of the chief 
issues, I think, of the 9/11 Commission Report was the 
importance of intelligence. Might you share with me your 
concepts, if you will, on modeling. What would you perceive to 
be the limitations of predictive modeling for acts of 
terrorism? If I could get all of you to take a stab at that 
question. And what can be modeled and what can't be modeled so 
that we can begin--or not begin but continue to find ways of 
improving our securing intelligence and finding the right 
models to work. I pose those two questions if all of you could 
begin to answer that.
    Mr. Fleming. The inherent problem with terrorism is its 
unpredictability. We can't predict what weapon will be used, 
where it will be used, or how often it will be used. As a local 
government, we take steps to harden our buildings, to secure 
our employees through identification badges and that type of 
step to prevent as best we can a terrorist attack at a local 
government. We feel that we are not particularly a target. And 
RIMS being a consumer of insurance doesn't have the scientific 
ability to do modeling, and we depend on Mr. Ulrich and 
companies like his to provide modeling to insurance companies 
to make these products available for consumers.
    Ms. Jackson Lee. Mr. Ulrich, it comes to you and you have 
modeling in your title, can you help us because beyond the 
private sectors, the governmental sector, we are engaged in how 
people can predict risk insurance but can we do that and how 
should we effectively try to enhance that model?
    Mr. Ulrich. Sure, well, we obviously think we can do a good 
job of assessing the likelihood of different targets being 
attacked, the type of weapons that will be used, and we know 
the terrorists have limited resources in terms of how many 
attacks they can pull off in a year. But the challenge is you 
can't make any location terrorist-proof. So at the end of the 
day, the money best spent is the money that catches the 
terrorists before they ever get to the point where they have 
built the bomb because once they have the bomb, it is tough to 
stop.
    Ms. Jackson Lee. Intelligence on the front end as opposed 
to the back end.
    Mr. Ulrich. Exactly.
    Ms. Jackson Lee. Gentlemen, anyone want to comment further?
    Mr. DeBoer. Well, I guess I am a little bit unqualified on 
some of this but I would say that we are the consumers of the 
product that is being delivered here. And we look at why this 
thing can't be priced and it strikes us that it is very logical 
that it can't be priced. This is a manmade threat. It is an 
evolving threat. Its goal is to alter governmental policies in 
the United States and the way of life here so it is constantly 
changing. There are potential catastrophic losses at the top 
end and that makes it difficult to model. What has been 
mentioned is that as you harden some buildings, other buildings 
become more open to an attack. It is certainly true, as we have 
seen, where governmental facilities have been hardened, 
creating greater exposure for privately owned facilities. So I 
think it is very, very difficult to respond to your question in 
a way that would make this modeling work when I think a lot of 
us believe on its face it can't.
    Ms. Jackson Lee. So can you give your cities and counties 
any comfort in their determinations on insurance, what they 
should do?
    Mr. DeBoer. Well, what we can do as far as building owners 
is take steps to inform ourselves as to what the current mode 
of attack might be. We can take steps to mitigate against those 
risks that we know about. And we can share information with our 
colleagues around the country as to what we are seeing in our 
locations that might increase exposure.
    Ms. Jackson Lee. Thank you.
    Mr. Lewis. If I may follow-up on that.
    Ms. Jackson Lee. Yes, thank you.
    Mr. Lewis. In terms of what we feel comfortable modeling 
today, given the technology of RMS and others, would be the 
severity of a conventional terrorism attack at a specific 
location. We feel that we can understand, given an attack takes 
place at a certain building, what the loss could be. We do not 
feel comfortable that we can in any way model the frequency or 
likelihood of an attack in general, the attack mode, or where 
that attack could take place. Moreover, for an attack using 
weapons involving nuclear, biological, chemical, or 
radiological weapons, we do not feel comfortable that we can 
fully gauge the severity of that attack or what the 
ramifications would be for the clean-up after that attack. If 
one goes back to the anthrax attacks a few years ago, the 
length of time it took to identify the source, identify what 
was involved in the clean-up, for that scale, if one can 
imagine on a broader scale, it is very difficult for someone to 
get their arms around, what the true magnitude of those losses 
could be. In contrast, for hurricanes or earthquakes, we have 
hundreds of years of actual events and thousands of years of 
data to support the information that is coming out of the 
modeling to give us some comfort that what we are seeing in 
terms of modeled output actually can be corroborated with 
history. And there is no clearer view of the difficulty than if 
you look again at the reinsurance markets, who have every 
incentive that if you can price this and if you can quantify 
it, that they would actually trade on that. And there is 
virtually no market there. That is the best indication of the 
lack of comfort in the ability to model this risk.
    Chairwoman Kelly. Thank you, very much.
    Ms. Jackson Lee. Thank you, very much.
    Chairwoman Kelly. Mr. Cleaver.
    Mr. Cleaver. Thank you, Madam Chairwoman. All of you agreed 
earlier about the inevitability of another terrorist attack. I 
would like to get a similar response on your belief that we 
will have another killer hurricane?
    Mr. Fleming. I think that is inevitable.
    Mr. Ulrich. Guaranteed.
    Mr. DeBoer. I would estimate that it will probably happen.
    Mr. Lewis. I think in responding to that, if one looks at 
the history in the United States and goes back to prior events, 
you can go back to the hurricane in Miami in 1926, and if you 
adjusted for property values and exposures that exist there 
today, it would be well in excess of the losses that we 
incurred for Katrina. So with all the build-up in property 
values along the coastline today and the fact that we do have a 
lot of hurricane activity, it is inevitable that we will have 
more hurricanes.
    Mr. Cleaver. Then it would seem to me that what happened on 
the Gulf Coast should provide some analysis of our ability to 
respond to another terrorist attack. And based on what happened 
down in the Gulf Coast and the problems that citizens are 
having even today, including Members of Congress who lost their 
homes, should the American public believe that in the event of 
another terrorist attack, or if the terrorists are able to 
create hurricanes, what should the American public expect from 
the insurance industry with the problems that we are having 
even at this very hour with insurance companies.
    Mr. Lewis. Let me respond. I think with respect to 
hurricanes, I think we feel like we understand with some degree 
of uncertainty what the risk of the hurricane threat is, and we 
try to make sure that we respond to our policyholders very 
quickly to pay those claims. I think what you are hearing today 
is that there is a real challenge when it comes to the threat 
of terrorism because we do not feel that we can fully 
understand what that risk is and what would be involved in 
responding. And we think to come up with a solution that 
provides the best response for everybody, for policyholders, 
for taxpayers, requires a partnership between the private 
industry and the Federal Government to provide that mechanism 
so that after an event, if it ever happens, there is that 
immediate response.
    Mr. Cleaver. But you are saying we do know what the risks 
are with the hurricanes. In spite of the fact that we have that 
knowledge, we still have not been able to respond adequately to 
thousands of people in that region. And if you are saying we 
don't understand the full risk of terrorism, which led me to 
assume that you were saying we do understand it with 
hurricanes, then can we expect that the response would be 
significantly better with a terrorist activity than what has 
happened in the Gulf region?
    Mr. Lewis. I think if you look at the Gulf, the insurance 
industry has tried to respond very quickly to our policyholders 
in that area. I think in terms of the broader threat of natural 
disasters, there are things that can be done, enforcement of 
building codes, making sure there is rate adequacy on those 
underlying policies, education uncovered for individuals. There 
are a number of things that can improve that, but I think it is 
a unique challenge when it comes to the threat of terrorism.
    Mr. Lewis. Mr. DeBoer?
    Mr. DeBoer. As far as the insurance responding to 
terrorism, 9/11 obviously was a tragedy from every perspective 
but one thing that was clear was that the insurance industry 
stepped up to the plate and paid those losses that came due. 
The reason they did that was because everybody who carried 
property and casualty insurance at that time implicitly had 
terrorism insurance. So they had insurance. When you ask what 
would be the result of a terrorist attack, I think the question 
is would there be terrorism insurance available to be 
purchased? What we are suggesting is that if this Federal 
program goes away and another program is not put in its place, 
the insurance industry is not going to be capable and will not 
have the capacity to offer that product. Therefore, if another 
9/11 attack occurs and people do not have insurance, there 
won't be anyone to pay those losses other than the Federal 
Government, to the extent that the Federal Government pays 
them. And that is the big difference.
    Now, I don't know down in the Gulf, I think a lot of--there 
may be a lot of uninsured activity down there and maybe that 
is--
    Mr. Cleaver. Well, no, actually--
    Chairwoman Kelly. Mr. Cleaver, will you sum up, please?
    Mr. Cleaver. Thank you very kindly. I yield back the 
balance of my time.
    Chairwoman Kelly. There isn't any left. Thank you. Mr. 
Crowley?
    Mr. Crowley. I thank the chairwoman and the chairman for 
holding this committee, as I mentioned earlier. And I want to 
thank our witnesses as well because I think you have brought to 
light many of the concerns of many of the members here in the 
committee, both in the Department of Homeland Security 
community and maybe more particularly the Committee on 
Financial Services. And I have been disturbed over the year 
about some of the comments coming from this Administration in 
regards to terrorism backstop insurance. And what causes me the 
greatest concern is that I believe we are still at incredible 
risk of attack. And I also believe that what gives our economy 
its greatest strength is that it is viewed worldwide and here 
at home, that it has the full faith and backing of the U.S. 
Government. Who doesn't believe that if we were attacked in 
some catastrophic way, the Federal Government wouldn't step in 
in some way, any way, it is in the interest of the Federal 
Government to create, I believe, this backstop provision. If 
there is a cataclysmic event, who else but the Federal 
Government can actually step in and provide the real insurance 
that is needed to give this economy the stability that it 
needs. Mr. DeBoer, if you could, I want to ask you very 
specifically about the folks, the clients that you represent. 
From their perspective, one of your members, just take us 
briefly through the process of how they would determine whether 
or not they would go forward with a project. What role does the 
availability of insurance play in that decision? Does it come 
into play at the beginning, the middle, or the end? Are there 
ways to get around a lack of capacity that can allow 
development to go forward or is it more likely that we would 
see a halt to development in the absence of terrorism risk 
insurance?
    Mr. DeBoer. I appreciate the question. It really does go to 
the heart of this. Our view is that if there is not a program, 
there will not be the capacity for the product. If there is not 
a product, you can't finance, you can't develop, and you can't 
transfer large-scale real estate. Now the heart of your 
question depends on whether you are talking about developing a 
new project or buying or selling an existing product. If you 
are developing something, and it is a multi-year project, you 
need financing that will get you from day one through multiple 
years and multiple phases of that development. You need to have 
not only financing in place but to get the financing, you need 
to have insurance in place. So the individual developer would 
begin by going through his financier to try and get the 
financing. He would go to his insurance broker and try to 
obtain enough insurance to make it through that multi-phase 
development. He might have to: piece together that insurance 
from multiple insurance carriers; use some from his existing 
carrier; go to the standalone market to fill a piece; or go 
overseas to fill a piece. And so it is all stitched together. 
If it is a developer who has multiple properties, he might be 
spreading that risk and spreading that insurance among his 
entire portfolio and there might be insurers willing to provide 
insurance because they know that not all properties are going 
to be subject to a loss at any one time.
    But this is an issue that comes up at the start of the 
project. It is at the start of the project whether you are 
developing, refinancing, financing, selling, or buying a 
property. It is a critical part of doing business today. The 
other thing I would say is this is not just a large city issue. 
Any property--right now the CMBS market, the commercial backed 
securities market, is the second largest source of financing 
for commercial real estate. Loans from all types of property 
across the country are put into those security pools. They have 
to be rated and the providers have to look and determine 
whether there is terrorism insurance on all of those loans or 
the bond issuance will not receive an attractive rating. So 
this is a broad-scale issue.
    Mr. Crowley. I am going to ask another question, I don't 
want you to answer it right away because I want to get another 
question in first. But are your members able to get coverage 
for nuclear, chemical, biological, or radiological risk? And 
from a developer's perspective, what impact does that lack of 
coverage, if you are not able to get it, what risk does that 
entail for your clientele? Before you answer that though, I 
don't pretend to know your knowledge of a particular site, but 
what you do know of the World Trade Center site in New York 
with 5 years out, we have yet to develop that property. Does 
that site have particular problems, as you see it, going down 
the road in terms of its redevelopment, the fact that it was 
the site of a terrorist attack and the fact that it has not 
moved forward in the way in which we would like to have seen it 
in New York. Are there any particular problems that you foresee 
going down the road? In other words, further requiring for this 
particular site an extension in some way of determining risk 
insurance down the road?
    Mr. DeBoer. I would prefer to let the Silverstein 
properties people respond directly to it except to say again 
that this is a multi-year project. It needs insurance over a 
long period of time to do this construction. It is also the 
site that has been the subject of two terrorism attacks so 
therefore its risk profile is high.
    Mr. Crowley. I am sure they would appreciate the last part 
of your question.
    Chairwoman Kelly. Thank you, Mr. Crowley.
    Mr. Crowley. Could he answer the middle question?
    Chairwoman Kelly. We will let them finish.
    Mr. DeBoer. Mr. Crowley, the answer to your first question 
is no. On a generally available basis, you cannot get insurance 
for nuclear, biological, chemical, or radiological attacks. The 
way that people do it is through captives, their own captives, 
and that is, to our knowledge, the only broad-scale 
availability of NBCR coverage in America today. If the backstop 
goes away, these captives will go away and America won't have 
this kind of coverage.
    Mr. Crowley. Thank you. Thank you, Madam Chairwoman.
    Chairwoman Kelly. Thank you for being here. Mr. Dent, do 
you have any questions for this panel?
    Mr. Dent. No, I don't. Thank you.
    Chairwoman Kelly. Thank you very much. We thank this panel. 
The Chair notes that some members may have additional questions 
for this panel, and they may wish to submit those questions in 
writing. So without objection, the hearing record will remain 
open for 30 days for members to submit written questions to 
these witnesses and to place their responses in the record.
    I want to assure this panel and other people here that this 
is an issue that we have been working on--I personally have 
been working on this issue ever since 9/11, and I want you to 
know that I will keep working on this issue and we will revisit 
this question until we get this right for all of America. So 
thank you very much. This hearing is now adjourned.
    [Whereupon, at 11:30 a.m., the subcommittees were 
adjourned.]
                            A P P E N D I X



                             July 25, 2006




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