Oxley, Greenberg Face Off On Terrorism Insurance Bill

He noted an old saying that the reinsurance industry is driven by two forces–fear and greed. After the Sept. 11 attacks, Rep. Oxley said, fear drove reinsurers away from the U.S. market. However, he said, since the U.S. is the largest market in the world, it doesnt make sense for reinsurers to take a pass on it. Greed, he predicted, will drive reinsurers back to the U.S. market.

However, Maurice R. Greenberg, chairman of New York-based AIG, challenged Rep. Oxleys comments. How long will terrorism be a threat, he asked? No one can say whether it will be one year, two or more, he said, predicting that the battle against terrorism will be continuous.

Moreover, he said, the insurance industry needs reinsurance, not loans. The industry is willing to pay premiums for reinsurance, Mr. Greenberg added, but there must be a reinsurer of last resort, and this is a proper role for government.

In addition, he said he does not agree that reinsurers will come back to the U.S. market at the same level as before. European companies, he noted, face substantial losses from the summer floods that devastated much of Central Europe, and because of the structure of their portfolios, European insurers suffered more than U.S. companies from the decline in the stock market.

The insurance industry is not looking for a bailout, he emphasized, but the fact is that insurers cannot handle certain losses. If terrorists attack a nuclear facility, Mr. Greenberg said, the resulting losses would be beyond the financial capacity of the industry.

"Im not going to bet the company on a single event," he said. "The company has been in business for 80 years. Im not going to preside over its demise."

A loan program, he said, will not solve the problem. Mr. Greenberg said financial rating agencies would treat the loans as a contingent liability, and state insurance departments would then limit the amount of business insurers could write.

Mr. Greenberg added that the payback provision in the House bill, H.R. 3210, is obscure. Under the bill, insurers could pass through the cost of the loans to commercial policyholders. But Mr. Greenberg said that an insurer cannot chase a policyholder that moves to another carrier. Thus, the industry, he said, is united against a loan program.

Rep. Oxley responded that he and Mr. Greenberg have different constituents, noting that while Mr. Greenbergs are his shareholders, his own are taxpayers. Every member of Congress has that constituency, he said, and members have an obligation to them.

However, Rep. Oxley said that he has made clear he is willing to negotiate in good faith with the Senate, which passed legislation, S. 2600, that calls for a quota-share reinsurance program, with the federal government paying up to 90 percent of insured losses, with no payback provision. Between what the Senate passed and what the House passed there is common ground, Rep. Oxley said.

Still, he said he is confident Congress will pass legislation before adjournment, possibly before the end of this month.

But he also staked out a strong position on another controversial issue–tort reform. Rep. Oxley said that while he approaches the tort issue in the spirit of compromise, he will not sign off on a bill that opens up U.S. business owners and building owners to legal attacks immediately after they suffered through a terrorist attack. In particular, he said he does not believe President Bush intends to sign a bill that allows trial lawyers to recover punitive damages from U.S. businesses after a terrorist attack.

Mr. Greenberg also blasted those who want to subject American victims of a terrorist attack to punitive damages. It is "un-American," Mr. Greenberg said, for one citizen to sue another for punitive damages after such an attack. "It is hard to rationalize intellectually," he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 16, 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.