Federal Government, Insurers Debate Plan to Cover Future Terrorist Acts

The push is on for creation of a federal plan to deal with future terrorist attacks. The Bush Administration has come up with an alternative to the insurance industry’s initial proposal, which called for a terrorist risk pool modeled after Britain’s Pool Re. The White House proposed a new plan on Oct. 15 that would divide the cost of property claims between the federal government and
insurers.

The Bush plan reportedly calls for the federal government to pay 80 percent, while the private sector would pay 20 percent of the first $20 billion of insured losses resulting from a terrorist act occurring in 2002. Above $20 billion in insured losses, the government would pay 90 percent, and insurers would pay 10 percent. In 2003 and 2004, the percentage shouldered by insurers would increase. After three years, the government would withdraw, allowing private insurers to take over.

Both proposals were discussed Oct. 22 at a special meeting hosted by the National Association of Insurance Commissioners in Washington, D.C.

The Bush plan calls for insurers to continue selling policies and paying claims, with reimbursement by the Treasury at a later date. But the heads of several of the nation’s largest insurers told the state insurance commissions that this plan would hurt smaller companies, who would struggle if they were forced to pay the money up front.

Insurers are still pushing for some sort of safety net—a terrorism pool to provide reinsurance. The White House rejected this original proposal as “anticompetitive” and “too complex” for the limited time frame.

Whatever solution is agreed upon will have to be implemented quickly, as Dec. 31 renewal dates loom. Many reinsurers have said that they will not renew terrorism coverage, and consequently, banks are likely to think twice before approving loans for construction projects and other ventures. The ripple effect could potentially harm the entire U.S. economy, according to industry spokespeople.

Discussions are continuing on Capitol Hill, with both lawmakers and the insurance industry hoping that some kind of compromise will be reached before Congress adjourns for the year in early November.

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