On Terror Losses, Govt. Role, Founding Fathers: NAMIC President Speaks Out

Like so many of his colleagues, Dave Anderson worries aloud about the consequences of a huge industry deductible tacked onto a federal backstop plan for insurance losses due to acts of terrorism.

How, he asks, do you even get to $10 billion (one threshold that's being seriously bandied about) without causing serious damage to companies, if there's no underlying mechanism to protect them, especially with the increasing evidence that private reinsurers will exclude terrorism coverage at renewal?

“A $1 billion loss could wipe out a lot of companies,” he says. Like a lot of the smaller ones that make up a fair portion of the 1,300-member National Association of Mutual Insurance Companies, presumably including his own, Farm Mutual Insurance Company of Lincoln County in South Dakota.

David Anderson is NAMIC's new chairman and he talked freely about the federal backstop issue, as well as current prospects for regulatory reform, during a telephone interview. The conversation was to have been face to face at the association's annual meeting in Washington until that affair fell victim to the events of Sept. 11.

Wiped away in the process was his first time in the spotlight in his new role, “the peak of my career” he calls it, wistfully. Now, he quietly fields my queries from faraway South Dakota.

Mr. Anderson has no immediate problem with the Treasury Department's proposed $10 billion aggregate cap on any federal backstop program.

“It's a pretty big number,” he says. “We would certainly hope it's adequate.”

If something so drastic happens that it's not adequate, he says, then the government would have to take another look. “You'd really be talking about some serious events. You'd have to entertain the question whether we're trying to make terrorism a covered peril or if we're dealing with a situation of war, which historically has been excluded.”

Still, he says, $100 billion is “a significant amount,” referring to the aggregate cap on losses that the government and insurance industry would assume under recent proposals. (Whether losses would be shared 90-10 or 80-20, with the government taking the bigger share, is one of the details still being hammered out.)

“We won't know if [the $100 billion] is sufficient, he adds, until something extraordinary happens. “And hopefully it won't,” he says.

I ask Dave Anderson how he responds to Washington critics like Robert Gordon, the senior counsel to the House Financial Services Committee, who say they've been down this road before with the insurance industry: crisis (say asbestos and medical malpractice), followed by cries that “the sky is falling” as the industry seeks federal relief, and then the market rebounds on its own. What's the difference here?

The sheer magnitude of the situation, he says, a loss thats at least double any prior catastrophe, and the fact that it didn't come from a “natural” exposure.

“We're dealing with more than just property losses. We're dealing with societal issues, and that's government's role.”

The insurance industry has a substantial pool of resources, but it's “a finite number,” he says.

“There's no magic in the insurance business. We don't have a pocket we can continually dip into.” It's a shared risk mechanism, he says, and with an epochal event such as 9-11, it's a proper role of government to make it even more shared, with the government becoming the largest spreader of risk.

He does think the current proposals are correct in providing relief for a limited period of time–enough time for the industry to develop programs to rebuild its reserves, in some cases, to replace lost dollars and enhance its financial position in the wake of the terrorist attacks.

Turning to another ongoing debate, I ask him about the effect of the events of Sept. 11 (the inevitable reference point for everything these days) on the prospects for regulatory reform.

In Congress, he answers, “it's moved off the front burner for a short period of time.” In the long run, though, he doesn't see any lasting impact. He fully expects that, in the spring, Congress will pick up where it left off.

By the same token, he doesn't see the terrorist attack advancing the cause of federal regulation. “It was a once in a lifetime event,” he says, “and for the most part everything went extremely well.” As you might guess, NAMIC is a big proponent of state regulation.

Speaking of which, he is satisfied overall with the progress of NAIC initiatives to streamline state regulation processes, given the magnitude of the task.

“Remember that different states all have their own issues, concerns that appropriately need to be discussed,” he says. Then too, some don't have full-time legislatures and some have very short terms. So there may be a limited time for a legislature to act.

But isn't that a part of the problem, that state regulation doesn't move quickly enough?

“I don't necessarily agree with that,” he says. “Taking things at a reasonable pace is oftentimes an advantage.”

When I ask Dave Anderson if he has anything to add, a conversation conducted entirely in the heavy shadow of “9-11″ briefly lightens. He tells me excitedly of preparations leading up to next year's annual meeting in San Diego, celebrating the 250th anniversary of the founding of the first mutual insurance company in the United States, Ben Franklin's Philadelphia Contributionship.

And then the moment passed.

“This is more pleasant to talk about than all of the 9-11 stuff,” he says, returning even in diversion to that inescapable reference point.

Thomas J. Slattery is NU's executive editor at large. He can be reached at tslattery@nuco.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 5, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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On Terror Losses, Govt. Role, Founding Fathers: NAMIC President Speaks Out

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