Maloney, Shays Address Issue of Terrorism Insurance
WASHINGTON – Two Connecticut House members agreed on Wednesday that something needs to be done to assure that businesses obtain terrorism insurance without driving insurance companies into bankruptcy.
Reps. James H. Maloney (D-5th) and Christopher Shays (R-4th) spoke out as the Bush Administration and influential members of Congress continued to try to develop legislation to meet the problem.
Sen. Christopher Dodd (D-Ct.), for his part, is working with the Treasury Department and leaders of the Senate Banking, Housing and Urban Affairs Committee on a compromise.
Maloney and Shays are both members of the House Financial Services Subcommittee on Capital Markets, Insurance and Government-Sponsored Enterprises, which met with leaders of business and the insurance industry yesterday on the subject.
Many in the insurance industry say they never anticipated a terrorist attack of the magnitude of what the country faced on Sept. 11. Until that day, insurance companies covered damage that might be caused by terrorist attacks, but found the risk too small to affect premiums. Now, industry officials say that they will either withdraw terrorism coverage for fear of bankruptcy or sharply increase premiums as most such policies come up for renewal in two months.
Congressional leaders and Bush administration officials acknowledge that the insurance industry is rapidly approaching a crisis that would have an adverse impact on the national economy. Treasury Secretary Paul O’Neill told the Senate Banking Committee on Oct. 24 that it was “urgent” that Congress enact a plan. “Leaving this problem unresolved threatens our economic stability,” O’Neill said.
Dodd, a member of the committee, said at the hearing that the events of Sept. 11 brought into sharp focus a number of urgent priorities for the United States. “Among them, I believe, is the need for the federal government to ensure that American consumers and businesses can obtain insurance against the risk of terrorism,” he said.
“Nothing is more important to the health and recovery of our economy than terrorism insurance.” Dodd said.
“Insurance is integral to nearly every segment of our economy. Available, affordable insurance against the risk of terrorism is a critical component to the continued health of virtually every business and household.” Insurance companies have told the government that they can pay the $40 billion in expected claims from the Sept.11 attacks, but they have warned that unless the government intervenes to limit their potential risk, they will exclude coverage for future terrorist acts when existing policies come up for renewal on Jan. 1.
“The insurance industry is being asked to insure against an immeasurable risk.” Dodd said. “That is something they cannot be expected to do alone. These terrorist acts are not directed at a single person or company, they are directed at the American way of life. The threat of terrorism to our nation demands and warrants a national response.”
“We are rapidly approaching the end of the calendar year, at which point nearly 70 per cent of all commercial and personal property casualty policies will be renewed.” Dodd continued. “In order for cars, homes and businesses to remain covered for future acts of terrorism, the insurance industry and the federal government must share a commitment to address this urgent need.”
Businesses, on the other hand, warn that not having terrorist coverage could be prohibitively expensive for them and say they would find it impossible to build and operate in areas considered to be high-risk terrorist targets.
Maloney said in an interview after the subcommittee hearing Wednesday that small business owners and property owners expressed major concern when insurance companies told them that “unless something is done legislatively by the beginning of next year, acts of terrorism will not be covered in premiums.”
Shays, also speaking after the hearing, said he was convinced that the terrorists “still on our soil” would attack again. “There is no point in having our heads in the sand,” he warned. The terrorists “put us on notice when they attacked us. The government has to do something soon to help businesses get terrorist coverage.”
One of the proposals being floated and supported by insurance companies is the creation of a government-backed insurance company, which would pool premiums from all insurers and cover 95 per cent of war and terrorism claims. If that premium pool is exhausted, the federal government would cover the rest.
Maloney said he does not support this plan because it would call for too much government involvement in business.
Shays, on the other hand, said: “It’s an issue of allowing industries to build up enough capital. These reserves should be large, significant and be there forever. The government needs to step in at the beginning to ensure that the industry has enough reserves.”
“As reserves build with more capital, the smaller the obligation of the government. We need to be involved because there is no reserve,” he added. “The insurance has been hit badly, and building up reserves is the challenge.”
Under another proposal, advanced by the Bush administration, the government would pay 80 percent of the first $20 billion in claims and 90 percent of the next $80 billion for any terrorism that occurred next year. The proposal would also limit the industry’s liability from terrorist claims to $23 billion in 2003 and $36 billion in 2004, the final year of the program. Insurers would pay all of the losses on the first $10 billion in claims in 2003 and on the first $20 billion in 2004.
Dodd, along with Secretary O’Neill and Senate Banking Committee chairman Paul S. Sarbanes (D-Md.) and senior minority member Phil Gramm (R-Texas.), settled on an outline last week under which the government would pay most terrorism claims after insurers covered the first $10 billion each year. But the committee has made no final decision on the legislation.
