President Obama says he wants to trim federal subsidies for coverage under the Terrorism Risk Insurance Act, a move strenuously opposed by many insurers. Obama’s budget proposal projects that savings from the program would amount to $644 million between 2010 and 2019. The program “remains vital, and we do not know if this proposal changes its efficacy, but we are going to study it carefully,” said Cliston Brown, spokesman for the Property and Casualty Insurers of America (PCI).

The budget document suggests that cuts be made in the program, as extended by Congress for seven years in late 2007, beginning in the fiscal year that starts Oct. 1, 2010, “after the economy is expected to stabilize.” It projects savings from the original legislation extending the program of $263 million over the 2010-2014 period and $644 million over the period of 2010-2019. It is part of a revised budget blueprint designed to yield $17 billion in spending cuts for fiscal year 2010.

The Congressional Budget Office (“CBO”) released a report in 2007 that estimated the cost of extending the Federal Terrorism Risk Insurance Program at that time to be $3.5 billion for the next five years and $8.4 billion for the next decade. These costs are merely estimates. CBO noted that its “estimate of the cost of financial assistance provided under [TRIREA] represents an expected value of payments from the program – a weighted average that reflects industry experts’ opinions of various outcomes ranging from zero damages up to very large damages resulting from possible future terrorist attacks.”

What this really means is that aside from administrative costs, the expense figures for TRIA – as well as any savings claimed – are all estimates based on spending that has not actually occurred, because the backstop that has not been used.

Obama Budget Calls for TRIA Cuts (National Underwriter 5/8/09)

CBO Estimate of TRIA Extension Cost (PDF file, CBO)

May 12, 2009