Terrorism Bill Critics Are Wrong
With a House-Senate Conference Committee facing a battle over two very different approaches to establish a federal role in terrorism reinsurance, there are a few critical facts that negotiators must consider.
One is that those who insist that insurers should have to repay any federal money they get for terrorism claims do not understand the fundamental goal of insurance, which is to spread the risk. Offering loans to help insurers pay terrorism claims–the foundation of the bill passed by the House–would not draw insurers back into the terrorism insurance market. Insurers need reinsurance, not loans, to be able to write this coverage.
Second, those who charge that Congress is being asked to "bail out" the insurance industry do not know what they are talking about. No one is suggesting that insurers be let off the hook. Indeed, even if the Senate's quota-share approach carries the day, private insurers would still have to pay the first $10 billion in losses before the feds enter the picture.
Third, self-appointed "consumer groups" are blindly against federal involvement. The Consumer Federation of America and Consumers Union called the Senate's quota-share bill an "insurance industry giveaway."
However, Congress should remember that these two groups are not the only ones representing "consumers" of insurance. The Risk and Insurance Management Society, speaking for risk managers who buy commercial insurance in the billions of dollars, praised the Senate bill.
Congress has to move fast to put a federal quota-share reinsurance program into place. The July 1 renewals are already history, and the far bigger Jan. 1 renewal season is already looming.
But passing just any bill with the words "terrorism reinsurance" in it won't do the trick. If Congress approves an inadequate bill to appease the demands of critics, the program will make no impact on the insurance market, and the economy will remain at risk. That's the message insurers and risk managers need to keep driving home in their lobbying efforts.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, July 8, 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.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.