Insurance Groups Raise Concerns About Terror Bill's Details, Implementation

Much of the controversy surrounds the tort provisions and charges among some Republicans that President Bush caved in to Democrats on the emotional issue of punitive damages. Sources told National Underwriter that Republicans are still trying to strengthen the tort provisions before signing the report. (For details of the bill, see the lead story on page 5.)

On the insurance industry side, there has generally been praise for the conference report, but also questions about the bill's details and implementation.

"The devil is in the details," said Monte Ward, vice president of federal affairs for the National Association of Mutual Insurance Companies in Indianapolis. The details of the agreement, he said, have been kept so quiet that insurers are not certain whether the plan will actually work in the marketplace.

While congratulating the House and Senate conferees for reaching an agreement, Mr. Ward added that NAMIC is disappointed that personal lines will not be covered under the plan.

There are many scenarios, he said, in which the solvency of a personal lines insurer could be threatened by a terrorist attack.

David Farmer, senior vice president of federal affairs with the Alliance of American Insurers in Downers Grove, Ill., praised the agreement, but added that it is still tentative.

"Not all the is are dotted and ts crossed," he said, adding that there are still some contentious issues, particularly on tort reform.

Gary Karr, a representative with the Washington-based American Insurance Association, also praised the agreement, but noted that no one at this writing had seen the final details. Nonetheless, he said, AIA is hopeful that the legislation, once enacted, will result in what everyone has said is the promise of the bill–to restore terrorism insurance coverage, secure the economy, and protect jobs.

Julie Gackenbach, director of federal relations for the National Association of Independent Insurers in Des Plaines, Ill., agreed. NAII is waiting to see the details, she said, but overall, NAII is happy that the agreement contains a true risk-sharing mechanism that should help stabilize the market.

Nonetheless, NAMIC, NAII and the Alliance are still trying to include a provision creating a voluntary program for personal lines before the report is signed.

In a letter to conferees, the associations noted that state insurance regulators generally do not permit broad terrorist exclusions for personal lines. Without a federal program, the associations said, personal lines could be faced with a reinsurance crisis that the federal program was designed to alleviate.

A voluntary personal lines program was contained in S. 2600–the original Senate version of the legislation–but was dropped by the conferees.

From a brokers standpoint, Joel Wood, senior vice president of government affairs for the Washington-based Council of Insurance Agents and Brokers, said one of the most important issues is that the agreement apparently will cover business interruption insurance.

Mr. Wood said this was a major issue for brokers, who have been emphasizing during this process that the transition between the federal program and private sector commercial insurance had to be seamless. Some earlier versions of the legislation did not include business interruption coverage, he noted.

Mr. Wood added that a lot of other transition issues remain unanswered at this point and could create problems for brokers and commercial clients once the program is in place.

Robert A. Rusbuldt, chief executive officer of the Independent Insurance Agents and Brokers of America in Alexandria, Va., said the lack of terrorism insurance has been plaguing the economy as a whole, and IIABAs business clients have been anxious to see the legislation.

He added, however, that the situation is still fluid. "There are still some significant hurdles that must be addressed, and the process of attaining signatures on the conference report, and exactly when and how the conference reform can or will be considered is up in the air," Mr. Rusbuldt said.

But consumer groups are blasting the agreement, calling it "a taxpayer-financed hand out" to insurance companies. "Instead of helping the relatively few businesses that cant get terror coverage, Congress is poised to give away reinsurance to a rich and politically powerful insurance industry," said J. Robert Hunter, director of insurance for the Washington-based Consumer Federation of America.

Mr. Hunter charged that most federal assistance would not be repaid under the agreement, which does not require any payback if losses exceed certain levels. Even when payback is required, he said, it is "miniscule."

Moreover, Mr. Hunter charged, the federal backstop kicks in too early. Noting that the required retention in the first year is 7 percent of direct written premiums from the previous year, Mr. Hunter said that taxpayer assistance would be available for some companies with low premiums at "ridiculously low levels."

"In some cases," he said, "taxpayers will be liable almost from the first dollar of losses."

Mr. Hunter added that under the structure of the agreement, insurance companies will have less of an incentive to require better security measures against a terrorist attack, since taxpayers will be shouldering most of the burden.

"By supplying free reinsurance to a wealthy industry, this plan would make America less safe," Mr. Hunter said.

Currently, Congress is in recess and not expected to return until after the Nov. 5 election. This means that opponents of the agreement will have a month or more to take shots at it before it comes up for a vote.

Mr. Wood said that while consumer groups are criticizing the agreement, the bigger problem for the legislation right now is with Republicans.

In addition to concerns over liability, he noted, some Republicans are also worried about individual company retention levels, which they believe are too low.

Nonetheless, he said, the White House is strongly supporting the agreement. This, Mr. Wood said, should be enough to overcome the objections to the liability provision and the retention issue.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 28, 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.