Insurers Need To AttackCredibility Problem Next
Once all the activity surrounding terrorism reinsurance legislation subsides, the insurance industry might do well to focus on another issue; namely, whether it has a credibility problem both on Capitol Hill and with the Bush administration.
The consensus proposal developed by the insurance industry to create a private mutual reinsurance pool backed by the U.S. Treasury as the "reinsurer of last resort" was dismissed out-of-hand, and on a bipartisan basis, both at the Treasury Department and by the relevant Congressional committees.
The widespread view seems to be that the industry is either exaggerating the risk or simply trying to dump its potential losses on the taxpayers.
The industry needs to ask itself why it is treated with such suspicion among the nations lawmakers.
Consider some recent comments from members of Congress and their staffs. Sen. Bill Nelson, D-Fla., who was his states insurance commissioner in the aftermath of Hurricane Andrew, said the insurance industry has a history of trying to dump its losses on the taxpayers when possible.
Sen. Phil Gramm, R-Texas, said that the industrys proposal to create a reinsurance "monopoly" backed by the federal government is "alien to my thinking."
Robert Gordon, senior counsel of the Republican-led House Financial Services Committee, said that the insurance industry has not made its case on the extent of the terrorism reinsurance crisis.
There have been a lot of insurance crises before, he noted, such as for medical malpractice coverage and asbestos. People go to Congress and say "the sky is falling," Mr. Gordon noted, but the market always comes back.
These comments reflect something less than full trust in the representations of the industry.
In all fairness, the insurance industry had an obligation to bring the potential of market disruptions to the attention of the government following the Sept. 11 terrorist attack.
Moreover, the industry did a good job of demonstrating that the potential is real. Everyone quoted above agrees that something needs to be done to stabilize the reinsurance market, and that the government will have to provide substantial financial backing in the event of a major incident.
But when Congress and the White House began considering a specific solution, the consensus industry plan that was meticulously crafted following weeks of grinding negotiations among different insurance interest groups was not even given a full hearing.
This is not to suggest that the industry proposal is wrong. Indeed, it may well be more workable than the quota-sharing arrangement, coupled with a mandatory $10 billion of industry-wide retention, currently being considered.
The point is that the perception of the plan, whether fair or unfair, is that the industry is simply trying to shift its losses to the taxpayer, and that this is something the industry does all the time.
The industry needs to ask itself how and why this perception developed. Is the industry suffering the consequences of the liability insurance crisis, the catastrophe insurance crisis, the environmental insurance crisis and other crises of the past?
Then, the industry needs to ask a further question: What, if anything, must it do to regain the trust of the nations lawmakers?
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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