Insurers Still Optimistic About Terrorism Insurance Bill

Insurers Still Optimistic About Terrorism Insurance Bill

Washington

One year after the tragic events of Sept. 11, 2001, the insurance industry remains optimistic that long-delayed legislation creating a federal government backstop for insured losses caused by acts of terrorism will finally be enacted.

“This can be a two-day conference if we can clear out the underbrush,” said Joel Wood, senior vice president of government affairs for the Washington-based Council of Insurance Agents and Brokers. He was referring to the parliamentary procedure in which House and Senate leaders reconcile their different approaches to the issue.

There are, Mr. Wood said, only four or five issues that need to be resolved. These include tort reform, the repayment level, the per-company retention, and the length of the program. “Its not that tricky,” he said.

Indeed, representatives of the four major primary company associations all said they expect to see legislation, although the timing is unclear. Predictions ranged from before the end of September to late November, when Congress is widely expected to reconvene for a post-election, lame duck session.

However, J. Robert Hunter, director of insurance for the Washington-based Consumer Federation of America, said he believes the chances for a bill are only 50-50. Mr. Hunter noted that he was an early supporter of legislation based on the House bill, H.R. 3210, establishing a federal government loan program. Indeed, he said, after the House passed H.R. 3210 in November 2001, he participated in a press conference on the steps of the Senate urging that body to follow suit.

In the days following the Sept. 11 events, Mr. Hunter said, there was a lot of uncertainty. There had been much discussion about the Jan. 1, 2002, reinsurance renewals, he noted, but no one really knew what would happen. Then Jan. 1 came and went without an implosion of the insurance market, and Mr. Hunter said this created a credibility problem for insurers on Capitol Hill.

“People were saying, What are these people telling us?” he said. “There is supposed to be a crisis. Where is it?”

The focus then went to the July 1 renewals, he said, but again there was no crisis. The industry, according to Mr. Hunter, made the claim of a crisis thinking it would not be tested, and that a bill would be passed before Jan. 1, 2002. But when legislation was delayed, he said, the industry's claims were challenged, and insurers lost credibility.

Mr. Hunter has held several press briefings since Jan. 1, arguing that the market has responded to terrorism risk better than anyone anticipated, including himself, and that a broad federal government role in the terrorism insurance market is not necessary.

Julie Gackenbach, director of federal relations for the National Association of Independent Insurers in Des Plaines, Ill., said the Jan. 1, 2002, renewal date was seen as “falling off a cliff.” It never should have been portrayed that way, she added. Reinsurance renewals, she explained, occur on a rolling basis. The industry did not implode, she said, but there are continued structural problems that are causing a drag on the economy.

Julie Rochman, senior vice president of public affairs for the Washington-based American Insurance Association, said there was some misunderstanding of the implications of Jan. 1 renewals. The problem, she said, was that if primary insurers were forced to write business and no terrorism reinsurance was available, they might have to pull out of markets.

But the states, Ms. Rochman said, relieved the crisis by allowing insurers to exclude terrorism coverage. “The state regulators stepped up and eased the pressure,” she added.

But fundamental problems remain, and are real, Ms. Rochman noted, citing recent data showing that many construction projects are stalled due to a lack of terrorism insurance coverage.

Ms. Rochman said that legislation would have been enacted prior to Jan. 1 had it not gotten bogged down on the issue of tort reform. Then came the Enron scandal, followed by a slew of other corporate scandals, which she said slowed down consideration of terrorism insurance legislation.

Monte Ward, vice president of federal affairs for the National Association of Mutual Insurance Companies in Indianapolis, added that many businesses that faced terrorism insurance problems did not want to talk about it publicly.

The fact that the market did not implode on Jan. 1 did not help the industrys credibility, he acknowledged, but he said that no one fully understood what would happen. Still, he said, he believes Mr. Hunter is factually wrong when he says there is no widespread terrorism insurance crisis. Businesses that have insurance, he said, have only about one-half of what they had before Sept. 11, and even that is very expensive.

If anything, the terrorism risk has increased, especially with talk of a possible invasion of Iraq, according to David Farmer, senior vice president for the Alliance of American Insurers in Downers Grove, Ill. Indeed, he said, the solvency of some significant companies would be at risk if there is another terrorist attack.

While some new capital has come into the market, Mr. Farmer said, there is not enough coverage, and the insurance that is available has high deductibles and is not affordable for many businesses. “The market has not come back,” he said.

Despite optimism within the industry that Congress will pass a bill, Mr. Wood acknowledged that movement is slow. During the recent August recess, he noted, there were no meetings between the House and Senate conferees picked to reconcile their two very different bills–with the House version authorizing loans that must be repaid, and the Senate seeking to establish a quota-share reinsurance program. “There was zero interaction,” he said.

Clearly, Mr. Wood said, the clock is the biggest problem facing advocates of legislation. But he said the business community is united on the need for legislation, and President George W. Bush continues to cite terrorism insurance as a top legislative priority.

Congress, he said, will probably remain in session until the second week of October, and then break for the election. Congress will then likely come back for a lame duck session. Mr. Wood said he still believes the bill will make it sometime during that time frame.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 9, 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.