Would House Terrorism Bill Cost More Than Senate's?
Washington
Despite its payback provision, the terrorism insurance loan program approved by the U.S. House of Representatives would actually cost the federal government more than the Senates quota-share reinsurance plan, which does not require repayment, according to a new study.
The study, which was commissioned by the Washington-based American Insurance Association, found that the House loan program legislation, H.R. 3210, would cost $3.81 billion for each year the program was in place, amounting to $7.62 over two years. By contrast, the study said, the Senates quota-share program would cost $1.76 billion in the first year and $1.44 billion in the second year, totaling $3.20 billion.
These figures are based on expected annual insured losses of $4.50 billion.
But the study was immediately blasted by J. Robert Hunter, director of insurance for the Washington-based Consumer Federation of America, who called it a "shameless attempt to prove the impossible."
The study, which was conducted by Stephen P. Lowe of the Connecticut office of Tillinghast-Towers Perrin, cited two reasons for its result.
First, the study said, federal disbursements under H.R. 3210 begin at a lower effective threshold than S. 2600. Second, under H.R. 3210, once the threshold is met, payments are on a first-dollar basis rather than excess over company retention. The study added that due to the repayment schedule in H.R. 3210, the government would not recover the bulk of its expenditures within a five-year budget window.
Gary Karr, a representative of AIA, said that while the results of the study may seem counter-intuitive, it buttresses AIAs argument that the best solution for the marketplace is the Senates structure.
But Mr. Hunter dismissed the study, charging that it relies on baseless assumptions that the federal government would be extremely slow in requiring payback. He said AIA "should be immediately inducted into the Flat Earth Society for claiming that a bill that requires taxpayer funds to be paid back is more costly than one that largely does not."
The study noted that H.R. 3210 provides for repayment of federal disbursements through assessments and surcharges on insurance policies, which S. 2600 does not. However, the study said that while H.R. 3210 is designed to operate like a loan facility, collections will likely be spread over several years based on market conditions. The timing difference between the federal disbursements and recoveries represents a significant economic cost, the study concluded.
But Mr. Hunter said that according to CFAs analysis, H.R. 3210 would have a net budgetary impact after five years of $380 million, which would be fully repaid the next year, while S. 2600 would have a $2.8 billion taxpayer impact, which would never be repaid. Mr. Hunter charged that the estimated repayments by AIA are far too low.
But AIA's Mr. Karr charged that CFA's comments represent a "political press release, not a study." AIA, he said, commissioned a serious research project, and the difference is obvious. "We are happy to put our credibility up against CFAs on Capitol Hill," he said. "We have no doubt that AIA would win the battle handily."
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 12, 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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