More and better terrorism insurance

Here’s an aspect of the war on terror Europeans and Americans agree on: We need more terrorism insurance, and the private sector should provide it.

Within a span of days, arguments were advanced by both the Paris-based Organization for Economic Cooperation and Development (OECD) and the U.S. Treasury Department. The OECD reported Tuesday that significant gaps in coverage exist, arguing that member countries “should rely, as far as possible, on the private sector to find solutions to the coverage of terrorism-related risks.” The OECD stressed that in some cases government interventions are necessary, but suggested that government-heavy terror-insurance schemes will be inefficient wherever they are enacted.

The Treasury report, mandated by Congress and released Thursday, evaluated the Terrorism Risk Insurance Act of 2002, the temporary government terror-insurance program currently under debate for extension expires on Dec. 31. If Treasury Secretary John Snow and Republicans in Congress, including House Majority Leader Tom DeLay get their way, the law will be scrapped. Its rules have been compromised by the trial-lawyer lobby, as we predicted when the law was enacted in late 2002, and promise to bankrupt the Treasury in the event of a major terrorist catastrophe. Mr. Snow, not mincing his words, said the program’s litigation rules “expose the American taxpayer to excessive and inappropriate costs” and “allow unscrupulous trial lawyers to profit from a terrorist attack.”

No doubt a good program will cost money, and each side must explain why its preferred solution is better. Meanwhile, three fundamental facts must be considered. First, there’s no denying the need for more terror insurance, and there is little doubt a government role of some sort is required. The expense of the September 11 attacks caught the insurance industry flat-footed and temporarily caused available terrorism insurance to all but disappear. An estimated $30 billion in insurance claims made the September 11 terror attacks the single most expensive catastrophe in the history of the insurance industry, 1.5 times more costly than the second-worst calamity, Hurricane Andrew in 1992. In the most expensive scenarios — those involving mass-casualty attacks or chemical or biological weapons — the government cannot let private companies stand alone.

Second, the insurance industry has been resilient in recovering from the attacks, and probably can find ways that lessen the risk that the terrorism law forces onto taxpayers. Some industry executives claim the 1992 act is responsible for the spike. If that is true, lawmakers must deal with those consequences. Third, the mandates cost the government too much. Currently, the federal government must pay 90 percent of an insurer’s loss, up to a total of $100 billion, and also pay for dubious lines, including commercial auto insurance. Congress must focus on getting coverage for Americans and their businesses against the prospect of the unthinkable, but all too possible.