Industry Critical Of Terrorism Coverage Letter

By Steven Brostoff

NU Online News Services, 3:20 p.m. EST, Washington?A consumer group letter stating that there is no crisis in the terrorism insurance market and no reason for Congress to enact legislation at this time was criticized by industry insurance groups.

The letter, addresed to Senate Majority Leader Tom Daschle, D-S.D., said that, "While some potential terrorist targets, like skyscrapers, are still having difficulty getting coverage and rates are still somewhat high for mid-sized and large businesses, there is plenty of evidence that a dynamic market for terror insurance is developing," the letter said.

The letter was signed by J. Robert Hunter, director of insurance for the Consumer Federation of America; Travis B. Plunkett, legislative director for CFA and Frank Torres, legislative counsel for Consumers Union.

Insurance groups said the letter was based on incomplete statistics and misleading in its conclusions.

The letter stated that a recent Federal Reserve Board survey found that the terrorism insurance situation has had little effect on banks' willingness to loan money for commercial projects, or on the overall demand for loans.

In addition, the letter said, most businesses are finding terrorism insurance. Indeed, the letter said, a recent survey of Fortune 500 companies found that more than 75 percent had some type of coverage.

Moreover, the letter said, the insurance industry is in a better position to handle future losses than before Sept. 11. The letter said that more than $25 billion in new capital has poured into the industry, whereas after-tax losses from the Sept. 11 attacks will be less than that amount.

In addition, the letter said, a number of new offshore reinsurers have been formed.

While rates remain high, the letter said, this is largely due to a classic turn in the economic cycle of the insurance industry.

Rather than passing legislation creating a federal backstop, the letter said, Congress should consider expanding the Liability Risk Retention Act to cover all commercial lines, as well as personal lines.

In addition, the letter said, Congress should determine whether there are any tax disincentives to the development of captive insurance or self-insurance mechanisms.

Congress should also develop proposals to encourage the securitization of risk, the letter said.

The letter added that if Congress does enact a terrorism insurance backstop, insurers should be required to repay the government for any covered losses.

Rodger Lawson, president of the Alliance of American Insurers, Downers Grove, Ill., criticized the letter as inaccurately characterizing the insurance marketplace.

For example, Mr. Lawson said, while the letter claims that $25 billion in new capital has poured into the insurance industry, the fact is that the industry's financial position is significantly worse.

While final claims numbers are not in, he noted A.M. Best estimates that industry surplus will decline by more than $27 billion over what existed in December of 2000 and will continue to decline when all losses are paid, Mr. Lawson said.

Mr. Lawson added that 18 governors, numerous elected officials and the Kansas City, Mo.-based National Association of Insurance Commissioners have all recognized the need for a federal backstop.

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Industry Critical Of Terrorism Coverage Letter

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