I can't help but feel perplexed over the argument by some that the federal government shouldn't be involved in providing insurance for terrorism exposures.
The Bush administration wanted the Terrorism Risk Insurance Act to quietly expire last year, and only grudgingly went along with a two-year extension. The argument that another catastrophic attack could undermine the insurance industry and the economy it supports fell on deaf ears. Critics believe TRIA gives the industry an excuse not to develop its own solutions. They don't believe insurers when they say this is an exposure they cannot rationally predict, price or assume.
This administration keeps reminding us we are at war. But at a time when we should pull together to defend against an evil menace, the president believes not even a government partnership with the private market is warranted.
The "war" on terrorism is expected to last generations. This enemy's aim is not to conquer, but to destroy Western civilization. 9/11 was the first blow. The London and Madrid train bombings underscored our vulnerability. The risk remains incalculable.
But 9/11 wasn't the first time we faced a brutal menace. After Pearl Harbor, there was fear of invasion–indeed, the Japanese took over Alaskan islands. Even before a declaration of war, Nazi submarines sank cargo ships off the U.S. coast, and enemy subs periodically popped up in the Hudson River around New York and New Jersey, only to vanish before area defenses could take aim. The FBI hunted for saboteurs.
The threat to business and home was very real, and carriers then, as today, realized war was a risk they could not reasonably insure.
In 1997, National Underwriter put together its Centennial issue, looking back over the 20th century in insurance news. For the 1940s section, we reported that during World War II, when President Franklin D. Roosevelt was faced with this question of insurability for an uninsurable act, the War Damage Corp. was created to handle the risk.
Before the WDC, there was the War Insurance Corp. Congress authorized $100 million to cover property losses from enemy attack weeks after Pearl Harbor, according to New York Times archives. However, only three insurers were willing to fill the gap.
By March 1942, Congress authorized $1 billion and creation of the WDC–which, according to the National Archives, "provided property owners in the United States and its territories and possessions with reasonable insurance protection against loss or damage from enemy attack or U.S. military resistance."
Insurance carriers wrote policies for the WDC, and insurance agents did the leg work. Both received commissions based on premiums collected. The New York Times reported that insurers assumed 10 percent of all losses in excess of net premiums collected, after expenses, with a maximum aggregate loss of $20 million. (According to an inflation calculator supplied by the U.S. Bureau of Labor Statistics, $1 in 1942 equaled $11.98 in 2005, meaning the industry's total exposure was about $240 million in today's dollars).
WDC policies went into effect on July 1, 1942. Within a month the program held $94 billion in risk, collecting nearly $119 million in premium on 3.75 million policies. By the war's end, the WDC held $122 billion in property coverage. The program was disbanded in January 1947, paying out only $470,000 in claims.
At a time when the survival of our civilization was threatened by two great military powers, the Roosevelt administration found a way to insure the uninsurable. Why does the Bush administration feel it can get away with doing less?
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