- The Washington Times - Thursday, October 25, 2001

The Bush administration, the insurance industry and Congress are headed for a tough negotiation over how to ensure that terrorism and war-risk insurance is still available after most private coverage expires at the end of the year in the wake of the Sept. 11 terrorist attacks.
After bailing out the beleaguered airline industry and addressing aviation security, Congress is now turning its attention to the fact that the market for insurance against further acts of terror is drying up.
Insurers, now awakened to the new risks of terrorism, have said they cannot accurately put a price on the risk or the cost of future attacks, and as a result are pulling out of the market.
"The terrorist attacks of September 11 created widespread uncertainty about the risk and potential costs of future terrorist attacks," Treasury Secretary Paul H. O'Neill said at a hearing of the Senate Banking, Housing and Urban Affairs Committee yesterday.
Sen. Bill Nelson, a Florida Democrat who previously served as that state's insurance commissioner, said that 70 percent of commercial insurance contracts are to expire on Dec. 31.
The industry has said that it will be able to handle the expected $40 billion in claims from the September attacks and has raised doubts only about future coverage.
The effect of a freeze in the insurance markets would be devastating to much of the economy, analysts said. Without insurance, construction of new power plants, office towers and other buildings would become impossible. Lenders could foreclose on existing projects if they did not have adequate coverage against terrorism.
The Bush administration has proposed a three-year plan that would have the government back up insurers by sharing in the cost of any future terrorist attacks. The cost to taxpayers would depend on the damage resulting from such attacks.
Under the plan, the federal government would shoulder most of the cost from any attacks next year. In 2003, it would help cover claims if they rose above $10 billion, a threshold that would rise to $20 billion in the third and final year.
After that, administration officials hope that private insurance would be able to provide full coverage.
Insurance companies, in contrast, have suggested that companies pay into a state-sponsored pool that mimics a plan set up in Britain after terrorist bombings in the 1980s. The government would then be responsible for settlements that exceed the amount in the pool.
But Sen. Phil Gramm of Texas, the top Republican on the banking panel, called that approach a "non-starter."
"The idea that somehow we have to have a government-sanctioned, government monopoly insurance pool is totally alien to my thinking," Mr. Gramm said.
Julie Rochman, a senior vice president at the American Insurance Association, said that the industry is open to other approaches, provided they smooth the way for insurance firms to re-enter the market.
"We need the government to draw a line so that we can assess the risk of terrorism and insure it," she said.
At the same time, the industries that build, own and operate commercial real estate such as office buildings and shopping malls, are clamoring for a federal program that stretches beyond three years.
Commercial properties have long-term financing that sometimes flows over three decades, said Tony Edwards, senior vice president at the National Association of Real Estate Investment Trusts, which represents the real-estate industry. A short-term fix will not win the confidence of capital markets, he said.
"A lender will not give us a 10-year mortgage if terrorism insurance only runs for three years," he said.
But Mr. O'Neill, at the hearing, rejected this complaint, saying insurers would step back into the market with insurance after a short periods.

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