Senate Seeks Consensus On Terrorism Reinsurance

Washington

The U.S. Senate, which had been deadlocked on the issue of a federal role in terrorism insurance, might be on the verge of reaching a consensus. At press time, the elements of a Senate bill appear to be the following:

First, insurers would be required to retain 7.5 percent of net direct written premium for any terrorism loss.

Second, for losses below $10 billion, insurers would pay 20 percent of all terrorism-related claims, while the federal government would pay 80 percent.

Third, for losses above $10 billion, insurers would pay 10 percent while the federal government would pay 90 percent. This would be a direct quota-share program with no requirement that insurers repay the government for its share of the losses.

This program reportedly would sunset after either one year or 18 months.

Joel Wood, senior vice president of government affairs for the Washington-based Council of Insurance Agents and Brokers, said he believes a deal might be achieved “fairly soon.” Two sticking points, he said, remain tort reform and unspecified “consumer protections.”

In terms of tort reform, Mr. Wood said, he expects the Bush Administration and Senate Commerce Committee Chairman Ernest F. Hollings, D-S.C., to agree to consolidate claims in a single federal court, but there likely will not be any other tort reforms in the Senate bill.

As for consumer protections, he said, it is unclear what these might entail, but could involve mandates on insurance companies of some sort.

Carl Parks, senior vice president of federal affairs for the Des Plaines, Ill.-based National Association of Independent Insurers, said that Senate leaders are continuing to negotiate and he believes a bill could be on the floor of the Senate by Tuesday, Dec. 11.

The individual company retention is a critical element of the package, he said. Moreover, according to Mr. Parks, a quota-share program as opposed to a loan program will ease administrative complexity and eliminate NAIIs concerns over cross-subsidies.

The House has already approved a bill, H.R. 3210, that would institute a government loan program to provide support for insurers in the event of a major terrorist loss.

If the Senate does approve a quota-share arrangement, a House-Senate conference committee will convene to work out a consensus bill.

Mr. Wood said the speculation is that a consensus bill would include a mandatory industry retention of about $10 billion, a policy surcharge to cover losses between $10 billion and $25 billion, and then a quota-share arrangement for losses above $25 billion.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 10, 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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Senate Seeks Consensus On Terrorism Reinsurance

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