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 isno crisis in the terrorism insurance market and no reason forCongress to enact legislation at this time was criticized byindustry insurance groups.

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

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

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

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

In addition, the letter said, most businesses are findingterrorism insurance. Indeed, the letter said, a recent survey ofFortune 500 companies found that more than 75 percent had some typeof coverage.

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

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

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

Rather than passing legislation creating a federal backstop, theletter said, Congress should consider expanding the Liability RiskRetention Act to cover all commercial lines, as well as personallines.

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

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

The letter added that if Congress does enact a terrorisminsurance backstop, insurers should be required to repay thegovernment for any covered losses.

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

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

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

Mr. Lawson added that 18 governors, numerous elected officialsand the Kansas City, Mo.-based National Association of InsuranceCommissioners have all recognized the need for a federalbackstop.