Washington–The National Association of Mutual Insurance Companies is telling key Senate members that in the event of a terrorist attack most insurers will be in financial jeopardy should they set too high a threshold for federal support to kick in.
In their efforts to secure some renewal of the Terrorism Risk Insurance Act, NAMIC has advised legislators that an unacceptable level of risk could place four-fifths of property-casualty writers in trouble if an event occurred.
"Without reasonable figures, given the near impossibility of purchasing reinsurance, small companies would be forced to take on an amount of risk that would violate their fiduciary obligation to their policyholders and their responsibilities under state law," said David Winston, NAMIC senior vice president of federal affairs.
His comments came in a letter written to Sens. Richard Shelby, R-Ala., and Paul Sarbanes, D-Md., chairman and ranking member, respectively, of the Senate Banking Committee.
NAMIC represents a number of single-state writers, and its letter is the opening shot in an eleventh-hour effort by the insurance and real estate industries to win a TRIA extension in some form before the act expires Dec. 31.
Both the Senate Banking Committee and the House Financial Services Committee are drafting proposals for member consideration. Proposals from members of both committees are expected next week.
Congress is expected to remain in session for some period after Thanksgiving, but its plate is full, and dealing with TRIA involves both economics and politics.
For example, the Coalition to Insure Against Terrorism (CIAT) sent a letter to the House Financial Services Committee last Thursday urging action on the TRIA issue.
CIAT wrote that it recognizes that "Congress has been grappling with the ramifications of a horrific hurricane season, but [it] is increasingly concerned that TRIA may expire at year's end."
"Given the limited number of days left on the 2005 Congressional calendar, we respectfully urge you to promptly consider and move forward legislation continuing this important program," CIAT's letter said.
CIAT asked Rep. Mike Oxley, R-Ohio, chairman of the panel, to "do all he can" to have the Financial Services Committee report legislation "encompassing a workable and comprehensive terrorism risk insurance program for a reasonable period beyond 2005."
The NAMIC letter was obtained from a member of the trade group. It said the group represents not only large insurers but hundreds of small insurers who write policies in just one or a few states.
For the smaller insurers, "a reasonable trigger and reasonable retention levels and co-payments are essential to their viability," Mr. Winston said. "A trigger of $500 million with deductibles of 20 percent and 25 percent for the next two years, respectively, would likely drive out 81 percent of the private insurance market."
He added that "a smaller private insurance market, in turn, would further expose the federal government to greater costs in the event of another attack."
Mr. Winston said that the country "badly needs the services of the insurance industry, not only for the payment of terrorism losses but also to provide an organized structure for loss adjusting services to assist FEMA in avoiding being overwhelmed."
The legislative challenge, Mr. Winston concluded, "is to encourage the private sector to take on as much of the risk as possible by devising a realistic plan that will permit insurers and reinsurers to provide coverage at a reasonable cost so that insureds will be willing to purchase it.
"In this way, the private sector can be part of a solution that minimizes the federal government's liability," he said.
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