- The Washington Times - Monday, July 29, 2002

In “Looking for insurance with Uncle Sam” (Commentary, Tuesday), Doug Bandow took issue with the terrorism insurance legislation that has been approved by Congress and is in conference committee.

Let me offer a perspective further from the ivory tower and closer to the ground. For several reasons, we believe this legislation would be a true example of public-private-sector cooperation and good public policy.

First, the crisis for insurers is real. Regulatory filings reveal that in recent weeks, insurers and reinsurers have increased, not decreased, their loss estimates and corresponding reserves to pay claims associated with the terror attack of September 11. Reinsurers, who are less regulated, have eliminated terrorism coverage from their policies with primary insurers. If another big attack were to occur, primary insurers would not have the resources to cover the risks they already have on their books.

Second, in a clear recognition of the crisis, the British government just expanded its own terrorism reinsurance program to backstop insurers for nuclear, biological and other threats as well as those associated with fire and explosions. Our British allies know the threat of terrorism is real, and they are preparing to protect the stability of their insurance markets. So should we.

Third, business groups are aware of the risks of inadequate public-private partnerships. The Mortgage Bankers Association this month released a survey showing that a lack of “comprehensive and affordable” terrorism insurance already has cost our economy about $3.7 billion in deals this year.

The private sector knows that competition is important and that it is best served by having many sellers in the marketplace. The final terrorism reinsurance bill will no doubt include substantial retention levels for any insurer participating in the program, which will minimize the cost to taxpayers. The individual company retention levels, which Mr. Bandow so dislikes, are necessary to help keep small and medium- size insurers in the marketplace, allowing for more competition and consumer choice.

Terrorism insurance is not a government subsidy, for the risks of terrorism and war are not insurable as such. Even the current proposals require retention levels for insurers that force them to assume more exposure to loss than they would voluntarily. In short, the vast majority of insurers would not voluntarily assume this risk at this time, absent government requirements to include this coverage.

Insurers are regulated as much as or more than any other sector of the economy. This is why terrorism risks are still fully covered in personal lines and workers-compensation policies as well as partially covered in most existing commercial policies. It is an undisputed fact that primary insurers' current exposure could endanger their solvency in the case of another significant terrorist attack.

Last, but not least, every senior U.S. official has indicated that more attacks are virtually certain. The risk is recognized by all. The federal government also clearly has recognized the economic risks to our country from a destabilized insurance market.

Such reasons validate the necessity of a federal reinsurance backup to stabilize the commercial markets and protect our economy.


Senior vice president of federal affairs

Alliance of American Insurers


Doug Bandow grossly misunderstands what the pending terrorism insurance bills in Congress will do. A correction of the facts is in order.

Both Mr. Bandow and those who support the federal legislation share a fundamental belief in the power of the free market. But what Mr. Bandow does not understand is that the free market for terrorism insurance cannot operate because of the unusual nature of the terrorism threat. A backstop provides the incentive for insurers to return to the markets, underwriting risk and thus helping American businesses create jobs.

Mr. Bandow uses a few out-of-context quotes to try to show that terrorism insurance is available. In contrast, Congress' bipartisan, bicameral Joint Economic Committee found in late May that “only a small number of insurers are actively providing stand-alone terrorism insurance policies,” and even those policies are expensive, and policy limits are often insufficient.

In the absence of a federal backstop, many facilities that are substantially underinsured or lacking terrorism coverage entirely such as airports, mass-transit systems, hospitals, bridges, universities and public arenas would require massive taxpayer subsidies for rebuilding and recovery should they become the next terrorist victims.

Insurers are paying September 11 claims quickly and fully, without having collected premiums for the coverage and without any government assistance. However, because of the changed nature of terrorism, the comprehensive economic security system provided by insurance no longer exists for future attacks.



American Insurance Association


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