Terrorism Law May Haunt Bush, Insurers

But the Treasury Departments responsibilities under the recently enacted terrorism insurance law could be far more extensive than the administration ever envisioned.

By way of background, the Pool Re proposal that was developed through an industry consensus would have created an industry-wide terrorism reinsurance pool backed by the federal government. It would have remained subject to existing state insurance regulation, in most respects, and, in large measure, would not have upset the existing legal structure surrounding the business of insurance.

The administration rejected the industrys plan out-of-hand, partly because of its duration (six years) and partly because of the fear that it would force the Treasury Department to establish a bureaucracy to oversee the terrorism reinsurance market.

Treasury presented a short-term quota-share proposal as a less bureaucratic alternative. But, of course, things rarely turn out as expected in Washington, and Congress finally passed a hybrid proposal that requires some fairly substantial oversight by Treasury.

For example, Treasury is suddenly in the business of monitoring the availability and "affordability" of terrorism insurance. It will compile information on premium rates of insurers and report back to Congress on the effectiveness of the program.

Presumably, this means that Treasury will have to establish an office to collect data on terrorism insurance, and insurance companies will be under some obligation to provide data in a uniform manner so that Treasury can conduct its analysis.

This presumes, of course, that insurance companies can figure out how to price terrorism insurance. Since there is no long-term experience data available, how will insurance companies and insurance regulators be able to determine whether a rate is actuarially sound?

In addition, Treasury will have to regulate the mandatory disclosures regarding premiums charged. In its interim guidance released last week (see story, page 5), Treasury said the model forms recently released by the National Association of Insurance Commissioners are "safe harbors" insurers can rely on in complying with the legislation.

But, Treasury went on to say, they are not the exclusive means. Thus, Treasury will have to determine whether forms other than the NAICs models will qualify as adequate disclosure, thus assuming another technical regulatory function.

There are countless other details that Treasury will have to address during its formal rulemaking process. As it noted in its interim guidelines, one of these is the definition of the term "make available," relating to the requirement that insurance companies make terrorism insurance available in all insurance policies covered under the law.

And in its interim guidelines, Treasury did not even address the recoupment procedure, which could be a whole new can of worms. (Under the law, insurance companies must repay Treasury for the first layer of government assistance.)

When all is said and done, I have to wonder whether the terrorism insurance bill will lead to a type of dual regulation that neither the Bush administration nor the insurance industry really wants.

Quick Personal Note: One of the new Treasury officials with responsibility for all the above is S. Roy Woodall, who was most recently with the Congressional Research Service but who I got to know when he was president of the National Association of Life Companies–a group that has since merged with the American Council of Life Insurers. Roy is also a former insurance commissioner.

Ive known Roy for almost 20 years. (Saying this sends a shiver down my spine. I still cannot come to grips with the fact that I am old enough to know anybody for 20 years.) I cannot imagine anyone better suited for the task ahead than Roy. I have truly enjoyed working with him over the years and I look forward to doing so again.

Healthcare: In my last column on Oct. 7, I suggested that it was time to reevaluate the employer-based healthcare system and perhaps make individuals responsible for providing their own health insurance coverage.

I mention it again because I received more feedback on this commentary than anything I have ever written for National Underwriter. I received nearly 20 letters and several telephone calls from readers who generally agreed with what I said, albeit with some variations.

This is hardly a scientifically valid sample, but I think the reaction I received demonstrates the growing dissatisfaction with the current system. If professionals in the insurance business are losing faith in employer-based health insurance, I have to wonder about its future.

Ill reiterate what I said last time. The employer-based health insurance system imposes costs and responsibilities on the wrong people, creates few incentives for cost control, and leaves the consumers of healthcare with relatively little choice regarding coverages and providers.

It is time for a healthcare revolution.

Steven Brostoff is NU's longtime Washington editor. He may be reached at sbrostoff@nuco.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 8, 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.