At Long Last, The Debate Over Terrorism Coverage Is Behind Us
Nearly 15 months after terrorists destroyed New York's World Trade Center, the United States finally will have a system in place to insure losses from any future attacks.
The bill that was sent by Congress to President George W. Bush for his signature is not perfect. For example, it excludes personal lines for the moment, although the Treasury Department will study the possibility of adding auto and homeowners insurers to the program.
However, the bill will stabilize the commercial insurance market by making coverage available once again, while providing a critical financial cushion for insurers.
Insurance industry groups are understandably relieved to have this controversy behind them. Insurers and brokers, backed by corporate insurance buyers, lobbied hard to make lawmakers understand the realities of the marketplace, as well as the effect a lack of terrorism coverage was having and could have on the economy.
The status quo was unacceptable. Primary carriers, abandoned by their reinsurers, were forced to either exclude the coverage altogether or severely limit their exposure, leaving buyers underinsured at best, bare at worst. Some states chose to forbid carriers from excluding the coverage, which would have either driven some from a state's market entirely, or forced them to assume an exposure that could have threatened their solvency.
Private insurers fulfilled their obligations by covering tens of billions in Sept. 11-related losses. Some claims, like the World Trade Center property loss, are being litigated over the extent of coverage, but friction with policyholders has been kept to a minimum.
However, it was another story when renewal time came around. To assure their financial survival, and reflect the reality that they had lost some if not all of their reinsurance support, primary carriers had no choice but to try to insulate themselves from another massive attack or series of attacks that could put them out of business.
Had this bill not passed, and another major attack occurred, the federal government would have had no choice but to come to the rescue financially. Now, rather than the government having to act on an ad hoc basis, we will have a standard operating procedure for handling claims, with the insurance industry still on the front line.
Again, this is no bailout, as some critics charged during the debate over the legislation. Insurers will still be liable for billions in claims. But at least coverage will be available, the price for it will be clear, and buyers will have an option whether to buy or self-insure.
The bill provides a badly needed level of certainty that has been missing in this economy since Sept. 11, 2001. Instead of scrambling to find someone, anyone, willing to write some coverage for any price, a reliable, competitive market will be restored. Projects that might have been delayed or cancelled for lack of terrorism insurance will now be able to proceed, saving jobs and stimulating economic growth.
And if the worst happens–if another terrorism attack or series of attacks occurs–the nation's insurance system will at least be left intact to pay claims, not only for terrorism losses, but for all business losses as they occur.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, November 25, 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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