- The Washington Times - Tuesday, October 16, 2001

The Bush administration has hammered out a plan to have the federal government help insurance companies cover possible terrorist attacks.

Companies say they will be able to handle the $40 billion in claims stemming from the Sept. 11 attacks in New York and Washington but they cannot continue to provide insurance against future acts of terrorism without federal assistance.

The arrangement, which would require congressional approval, attempts to balance the need to help the insurance industry with the Bush administration's desire to avoid creating a new federal agency to provide insurance.

"The whole point is to gradually recede the government back out of the private insurance market, with the hope and expectation being that after three years, the private market mechanisms would be re-established," said a senior administration official, who asked not to be named.

Under the proposal, the federal government would share the cost of future terrorist attacks with insurance companies while reducing its role over the three-year life of the plan. The cost of the plan to the federal Treasury would depend on the level of damage inflicted by any attacks.

The announcement followed a weekend of negotiations between the White House and major insurance firms.

"We have heard our leaders say that new terror attacks are likely, so this plan is urgently needed," said Robert Hartwig, chief economist with the New York-based Insurance Information Institute, an industry group.

In the weeks after the attacks, reinsurance companies, the businesses that help guarantee that primary insurers can meet their obligations, have made clear they will not cover claims resulting from future terrorist attacks. Since Sept. 11, they say, it has been impossible to reliably calculate the risk of terrorism, an essential component of any insurance policy.

As a result, primary insurers began warning last month that they will halt terrorism coverage by the end of the year.

"Without coverage against terrorist acts, banks will not [finance] new construction," the senior official said. "It will be difficult to sell major projects such as new pipelines, new power plans [and] skyscrapers."

In response, the White House developed a plan designed to win back the confidence of reinsurance companies. Insurance companies will continue to offer normal terrorism-risk policies, but the federal government would cover a declining portion of the claims they must pay to beneficiaries over the next three years.

Beginning next year, the government initially would handle 80 percent of any claims under $20 billion from any future terrorist attack, and 90 percent of claims above that figure.

In the second year, insurers would shoulder up to $10 billion in claims. Payments between $10 billion and $20 billion would be split evenly, and the government would cover 90 percent of any losses over $20 billion.

In the third and final year, insurers would be liable for all claims under $20 billion, losses between $20 billion and $40 billion would be split equally, and the government would again bear 90 percent of claims over $40 billion.

The industry had pleaded with the White House to back an insurance-pooling plan similar to one developed in Britain after a spate of terrorist bombings in London in the 1980s. Under that model, companies pay into a state-administered pool, which pays claims from terrorism, with the government picking up the tab beyond what is in the pool.

But the White House rejected that model as overly bureaucratic, saying it wanted a plan that foresees the gradual elimination of the government's role in providing terrorism insurance.

"We have some concerns about having a pool that's a monopoly," another administration official said. "It would get the Treasury in the business of regulating."

LOAD COMMENTS ()

 

Click to Read More

Click to Hide