Consumer Groups Fight Terror Re Bill
Washington
There is no crisis in the terrorism insurance market and no reason for Congress to enact legislation at this time, consumer groups said in a letter to Senate Majority Leader Tom Daschle, D-S.D.
"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.
The letter was criticized by insurance groups as based on incomplete statistics and misleading in its conclusions.
The letter said 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. (See story, page 34.)
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 consumer groups 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 groups urged Congress to 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 groups 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 in 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 industrys financial position is significantly worse than before Sept. 11.
While final claims numbers are not in, he noted that A.M. Best estimates that industry surplus will decline by over $27 billion over what existed in December of 2000, and will continue to decline when all losses are paid, Mr. Lawson said.
He 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.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 3, 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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