Insurers Still Optimistic About Terrorism InsuranceBill

Washington

One year after the tragic events of Sept. 11, 2001, theinsurance industry remains optimistic that long-delayed legislationcreating a federal government backstop for insured losses caused byacts of terrorism will finally be enacted.

“This can be a two-day conference if we can clear out theunderbrush,” said Joel Wood, senior vice president of governmentaffairs for the Washington-based Council of Insurance Agents andBrokers. He was referring to the parliamentary procedure in whichHouse and Senate leaders reconcile their different approaches tothe issue.

There are, Mr. Wood said, only four or five issues that need tobe resolved. These include tort reform, the repayment level, theper-company retention, and the length of the program. “Its not thattricky,” he said.

Indeed, representatives of the four majorprimary company associations all said they expect to seelegislation, although the timing is unclear. Predictions rangedfrom before the end of September to late November, when Congress iswidely expected to reconvene for a post-election, lame ducksession.

However, J. Robert Hunter, director of insurance for theWashington-based Consumer Federation of America, said he believesthe chances for a bill are only 50-50. Mr. Hunter noted that he wasan early supporter of legislation based on the House bill, H.R.3210, establishing a federal government loan program. Indeed, hesaid, after the House passed H.R. 3210 in November 2001, heparticipated in a press conference on the steps of the Senateurging that body to follow suit.

In the days following the Sept. 11 events, Mr. Hunter said,there was a lot of uncertainty. There had been much discussionabout the Jan. 1, 2002, reinsurance renewals, he noted, but no onereally knew what would happen. Then Jan. 1 came and went without animplosion of the insurance market, and Mr. Hunter said this createda credibility problem for insurers on Capitol Hill.

“People were saying, What are these people telling us?” he said.“There is supposed to be a crisis. Where is it?”

The focus then went to the July 1 renewals, he said, but againthere was no crisis. The industry, according to Mr. Hunter, madethe claim of a crisis thinking it would not be tested, and that abill would be passed before Jan. 1, 2002. But when legislation wasdelayed, he said, the industry's claims were challenged, andinsurers lost credibility.

Mr. Hunter has held several press briefings since Jan. 1,arguing that the market has responded to terrorism risk better thananyone anticipated, including himself, and that a broad federalgovernment role in the terrorism insurance market is notnecessary.

Julie Gackenbach, director of federal relations for the NationalAssociation of Independent Insurers in Des Plaines, Ill., said theJan. 1, 2002, renewal date was seen as “falling off a cliff.” Itnever should have been portrayed that way, she added. Reinsurancerenewals, she explained, occur on a rolling basis. The industry didnot implode, she said, but there are continued structural problemsthat are causing a drag on the economy.

Julie Rochman, senior vice president of public affairs for theWashington-based American Insurance Association, said there wassome misunderstanding of the implications of Jan. 1 renewals. Theproblem, she said, was that if primary insurers were forced towrite business and no terrorism reinsurance was available, theymight have to pull out of markets.

But the states, Ms. Rochman said, relieved the crisis byallowing insurers to exclude terrorism coverage. “The stateregulators stepped up and eased the pressure,” she added.

But fundamental problems remain, and are real, Ms. Rochmannoted, citing recent data showing that many construction projectsare stalled due to a lack of terrorism insurance coverage.

Ms. Rochman said that legislation would have been enacted priorto Jan. 1 had it not gotten bogged down on the issue of tortreform. Then came the Enron scandal, followed by a slew of othercorporate scandals, which she said slowed down consideration ofterrorism insurance legislation.

Monte Ward, vice president of federal affairs for the NationalAssociation of Mutual Insurance Companies in Indianapolis, addedthat many businesses that faced terrorism insurance problems didnot want to talk about it publicly.

The fact that the market did not implode on Jan. 1 did not helpthe industrys credibility, he acknowledged, but he said that no onefully understood what would happen. Still, he said, he believes Mr.Hunter is factually wrong when he says there is no widespreadterrorism insurance crisis. Businesses that have insurance, hesaid, have only about one-half of what they had before Sept. 11,and even that is very expensive.

If anything, the terrorism risk has increased, especially withtalk of a possible invasion of Iraq, according to David Farmer,senior vice president for the Alliance of American Insurers inDowners Grove, Ill. Indeed, he said, the solvency of somesignificant companies would be at risk if there is anotherterrorist attack.

While some new capital has come into the market, Mr. Farmersaid, there is not enough coverage, and the insurance that isavailable has high deductibles and is not affordable for manybusinesses. “The market has not come back,” he said.

Despite optimism within the industry that Congress will pass abill, Mr. Wood acknowledged that movement is slow. During therecent August recess, he noted, there were no meetings between theHouse and Senate conferees picked to reconcile their two verydifferent bills–with the House version authorizing loans that mustbe repaid, and the Senate seeking to establish a quota-sharereinsurance program. “There was zero interaction,” he said.

Clearly, Mr. Wood said, the clock is the biggest problem facingadvocates of legislation. But he said the business community isunited on the need for legislation, and President George W. Bushcontinues to cite terrorism insurance as a top legislativepriority.

Congress, he said, will probably remain in session until thesecond week of October, and then break for the election. Congresswill then likely come back for a lame duck session. Mr. Wood saidhe still believes the bill will make it sometime during that timeframe.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 9, 2002.Copyright 2002 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.