GAO Report Key To Federal Terrorism Re Bill

"A lot will be determined by what comes out of the GAO report," said Carl Parks, senior vice president of federal affairs at the National Association of Independent Insurers in Des Plaines, Ill.

For a bill to move, the GAO report will have to demonstrate a significant risk shift from insurers to banks and property owners, added Joel Wood, senior vice president of government affairs for the Washington-based Council of Insurance Agents and Brokers.

The focus on the Feb. 27 hearing comes following an intense effort to enact legislation prior to the 2001 Congressional recess. The fact that many reinsurance contracts were up for renewal on Jan. 1, 2002, and were expected to contain terrorism exclusions, was the driving force behind the legislative effort.

The fear was that without a federal government backstop, the absence of terrorism reinsurance would severely inhibit economic activity, particularly in areas regarded as at "high risk" for another attack.

The House of Representatives did pass legislation that had strong bipartisan support. Under the House bill, a federal loan program would pay for terrorism losses above a retention amount. However, some of the bipartisan support for that bill was lost when the House leadership attached controversial tort reform language to the legislation.

On the Senate side, a bill was pending that would establish a quota-share program, in which the federal government would pay for up to 90 percent of terrorism losses above a threshold industry-wide retention level. But that bill never passed due to opposition to its tort reform language.

Industry representatives generally agree that the delay in passing legislation caused by the dispute over tort reform caused the effort to lose considerable momentum. "You can't diminish the impact of the delay," Mr. Wood said.

The fear was that in the absence of Congressional action, an economic calamity would occur, but Mr. Wood noted that such a calamity failed to materialize. "If [a calamity] is the threshold we have to achieve, there probably will not be a bill," he said.

However, he added, there is significant evidence, from the Council's own membership survey, of major economic impact from the lack of terrorism coverage. For small-commercial policies, he said, there is very little change, while the middle market is seeing steep underwriting standards, focusing on factors such as concentration of employees. For large, scripted policies, he said, there is a terrorism exclusion across-the-board.

NAII's Mr. Parks said it will be hard to enact legislation. Senate Majority Leader Tom Daschle, D-S.D., has identified terrorism reinsurance as a priority, but insisted he will not accept any "extraneous" issues, such as tort reform.

Therein lies a dilemma, Mr. Parks said. It will be very hard to get 60 votes, the amount needed to cut off a filibuster, for legislation that has strict tort reform, but it will also be very hard to get 60 votes for a bill without tort reform.

Moreover, he said, 2002 will be a short legislative session, due to the November elections, and there are a lot of competing demands on the Congressional schedule.