‘Moral hazard’ isn’t a good reason to end TRIA
My friend Mark Calabria at the Cato Institute has a good piece in Roll Call that makes the case for allowing the Terrorism Risk Insurance Program to lapse. I’m sympathetic to him in the medium term but, given the enormous precedent Congress has set of paying for terrorism losses, I’m more enthusiastic about the idea of changing the program to bring in more private capital rather than getting rid of it altogether right away.
I think he also raises some good points about the ways that direct public coverage and real estate investment trusts can spread the risk of TRIA. The unique nature of workers’ compensation insurance – that is required of all employers, that it is no fault, that it must cover all types of losses, even those from nuclear, chemical, biological and radiological attacks – means that we may need some support for that line of business for a long time to come, maybe even forever.
There’s one place—one small place—where I think Mark is dead wrong. He writes:
By making available under-priced insurance, property owners and developers have a reduced incentive to construct and rehabilitate structures to better withstand a terrorist attack.
Personally, I just don’t think this argument holds much water, in at least three ways. First, terrorist attacks are intended to spread terror and would be nearly as effective even if good “mitigations” are put in place. In the World Trade Center, essentially everybody who was in an office below the impact locations survived in large part because the towers had done a very good job preparing and conducting drills against a serious fire. The fact that there was a 99 percent survival rate didn’t blunt the force of the attacks or make them less horrible. Similarly good mitigation won’t do so elsewhere.
Second, as my colleague Ray Lehmann points out, “if you put up storm shutters, a hurricane doesn’t plot to find other ways to hurt you.” Terrorists do plot and they tend to attack using weapons of war that are intended specifically to kill people.
Finally and most importantly, while property owners do and should have a primary responsibility for protecting their property against natural disasters and even common crimes like theft, the primary responsibility for protecting against terrorism lies with the national government. Local police forces play a role. While property owners have roles in vigilance and security, they can’t and shouldn’t be expected to do everything.
So read Mark’s piece. It makes some good points. I agree that we should eventually do away with TRIA. But I beg to differ with him on the idea that TRIA is really discouraging property owners to be on guard against terrorism.
