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If one sentence of truth has ever come from President George W. Bush's mouth, it's his warning that al-Qaida wants to get us again. Listen to any terrorism expert--from those criticizing the administration to those serving it--and they'll tell you the same thing. The infamous terrorist gang still exists. It still seeks to commit heinous attacks with the highest civilian casualties, deepest financial impact and loudest symbolic thunderclap imaginable.

To pull off these heinous acts, will al-Qaida likely aim at Bozeman, Mont., or New York City's Lower Manhattan? Will they aim at Fayetteville, Ark., or Capitol Hill? The answers are obvious, but just in case you're a little slow to admit reality, here's some proof from the modeling firm Risk Management Solutions.

So who cares about insurance buyers in Montana, Arkansas, West Virginia and other backwater business locales? Chances are you don't. Big insurers don't. And terrorists don't. Companies in big cities, meanwhile, face a tough choice from three risk management options.

One, they can hightail it off the 70th floor of the Sears Tower and move HQ to a fortified compound in Idaho. Relocation may be practical for a few. But let's say half the corporations in the Sears Tower and nearby high rises turn tail for corn-fed country. Forget about it. The cost to Chicagoland's economy--the country's economy--would be worse than most things Osama has under his turban.

The second option is the oldest, easiest and most popular strategy in risk management history. Big-city firms can say, "Why buy insurance for something that's not going to happen to me?" Even if it does, why buy insurance if you can rest assured the feds will bail you out afterward?

The third strategy is to insure your business against terrorism. About 54 percent of policyholders went this route in 2004, according to the Treasury Department.

That brings us to my point: why the TRIA extension, or TRIEA, was needed, and will be needed for far longer than its two-year limit. Most of these policyholders are companies with offices in major targets--and they surely know it. They've seen the modeling estimates that sound like awful jokes you might hear in a cave in the Tora Bora Mountains:

* What happens when you put a truck bomb in a major U.S. business district? $40 billion in losses.

* Did you hear the one about the chemical attack, a big American city and the billowing $85 billion loss?

* What goes boom, costs insurers $450 billion and kills 300,000 people? A 5-kiloton nuke in Manhattan.

Without TRIEA, businesses in big cities wouldn't be able to responsibly protect themselves from any of these attacks.

Why? In the simplest terms, covering a $450 billion risk sucks. Without TRIEA, chances are carriers would flee the terrorism market quicker than they're skedaddling out of Florida homeowners. Can you blame them? Demand for coverage is concentrated in, you guessed it, large cities where risk and loss-value are both highest. And diversification of terrorism risk is near nil thanks to risk managers in West Virginia, Montana and Arkansas who won't buy coverage.

I know, I know--you say there's no chance that terrorists could detonate a tactical nuclear weapon in one of our fair cities, or engulf a whole business district with sarin gas. Hell, in today's locked-down security environment, the good guys may even be able to stop the evildoers from sneezing in a crowded elevator. Well, if you're so sure of that, then don't buy terrorism coverage.

But don't whine when other people do. Chances are, during its two years, TRIEA will not affect you, either as a business executive or a private taxpayer. President Bush and Senate Republicans made sure of that. They framed TRIEA so it isn't an insurance-industry subsidy. They also made clear their intention to shut down the chances of another extension after 2007.

Still, for the next two years, TRIEA will do what it was meant to do--rescue insurers in case of Armageddon. Even if such an event were to happen, the law only affords $100 billion in assistance to insurers. Be thankful, though, that Uncle Sam is always good for the difference.

MATTHEW BRODSKY is associate editor of Risk & Insurance®.

February 1, 2006

Copyright 2006© LRP Publications