Absent New Attack, Terrorism Bill Lags
San Diego
A day after Vice President Dick Cheney told the nation that another terrorist attack on America is almost a certainty, speakers at an insurance industry meeting here predicted it could take just that to get the U.S. Senate to act on a federal terrorism insurance backstop.
"At this point, were very discouraged," Robert Gordon, senior counsel to the U.S. House of Representatives Committee on Financial Services, told a group of actuaries here at the Casualty Actuarial Society Spring Meeting.
Mr. Gordon noted that his presence at the meeting was a testament to the fact that nothing was happening in Washington for him to work on with respect to the terrorism insurance bill.
Reviewing events since Sept. 11, he said that while a bill passed in the House "by a good bipartisan marginweve been waiting and waiting and waiting" for action in the Senate.
The Senate isnt "missing the forest for the trees, theyre missing the forest for the leaves on trees," he charged, contending that the trial bars influence on the Senate with respect to tort reform proposals have held up the process.
"I think the Senate could act if they decided to show some real leadership on the issue, or if we had another [terrorism] event," he said.
Robert Graham, senior vice president and assistant general counsel for General Reinsurance Corp. in Stamford, Conn., had similar sentiments.
"Think about whats been occupying the headlines for the past few weeks," he said, referring to questions and political reactions to information about what the Bush Administration knew about al-Qaedas plans pre-Sept. 11. Its clear that "little if anything will be done until (a) the elections are over in November or (b) theres another attack," he added.
"Turn that around" and you have the questions of what did Congress know about the likelihood of another attack, and "how responsible have they been in addressing it?" Mr. Gordon said.
"Is tort reform an excuse? Is there any hope of separating that issue out?" asked Colorado Insurance Commissioner William Kirven. "I wish that were the case. Unfortunately, the groups that are involved have too much political impact."
On a state level, Mr. Kirven was asked to give his–and the NAICs–views on terrorism coverage and exclusions.
"We resisted the exclusions, but we recognize that to maintain the viability of the market, we cant compel our insurance companies to underwrite risks for which they can not obtain reinsurance," he said.
He added that not allowing the exclusions would "not only undermine the [insurance] market for terrorism, but undermines the markets ability to fund other losses" not related to terrorism.
"We do not have the legal authority to mandate terrorism coverage," he added, noting that a search through state laws will not turn up the word "terrorism" anywhere in the United States.
He also said it would be counterproductive for states to mandate terrorism coverage without "some federal assistance to put some definitions around what the risk is."
"Thats the most encouraging thing Ive heard an insurance commissioner say in six months," said Mr. Graham of General Re.
"The problem with mandating the coverage is that you change the economic decision that the [insurance] company makes," he said, agreeing with Mr. Kirven.
As for the reinsurance situation, he said that most reinsurers have figured out what their "willing-to-lose number" is for potential losses arising from terrorism, and that they are building their portfolios around that number.
"Theyre not going to expose themselves beyond that willing-to-lose number," he said.
"Terrorism is being excluded by most professional reinsurers for most classes of business, with some limited writing back for selected clients," he said, noting that such "write-backs" come on "much more limited terms and conditions and for a significant price."
Reacting to a remark by Commissioner Kirven suggesting that the insurance market is "not going to take any risk where its not going to get a return on its dollar," Mr. Graham said its not a risk-of-return question, but, potentially, a "risk-of-ruin" question for reinsurers.
General Res surplus at year-end 2000 was roughly $5 billion, he said, noting that the reinsurer put up about $1.5 billion on World Trade Center losses in 2001. "We cant afford–literally cant afford–another $1.5 billion loss," he said.
"Most of the loss associated with the next [terrorism] event is going to be an uninsured loss," he said, suggesting such a development "will drive the political decision-making process differently."
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, May 27 2002. Copyright 2002 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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