Insurance News

Obama Plan to Cut Support For Terrorism Insurance Sparks Protest

Posted on: September 19, 2010

As the nation marks nine years since the 9/11 attacks, the Obama administration’s plans to cut a federal stop-loss program for terrorism insurance would reduce the availability and increase the cost of coverage for acts of terrorism, a property-casualty think tank said Friday.

The Terrorism Risk Insurance Act of 2002 was a result of the 9/11 terrorist attacks. The government functions as a reinsurer to private insurers that offer terrorism coverage, such as The Hartford Financial Services Group. The act, which has been modified and reinstated twice since 2002, says the federal government will pay for insured losses greater than an aggregate of $27.5 billion, up to to a total of $100 billion, paid by the government and private insurers.

For example, the Sept. 11 attacks caused $40 billion in 2010 insured losses — in 2010 dollars — and would have qualified for the program, according to the Insurance Information Institute.

The Obama administration’s 2011 budget calls for scaling back the federal program. In addition to saving money, the administration argues, reducing the availability of a government stop-loss will encourage the private sector to mitigate terrorism risk through other means, including building safer buildings and seeking other reinsurance options. The program is scheduled to last through 2014.

But if the program is reduced, insurers will be less likely to offer coverage and it will be more expensive, causing building owners to forgo it, said Robert P. Hartwig, the Insurance Information Institute’s president.

“Here we have a program that works,” said Hartwig, an economist. “Coverage is available. It’s affordable. It will cost the government nothing in the vast majority of circumstances that would occur, and most businesses buy it.”

Last month, insurance brokers Guy Carpenter and Marsh — both operating companies of Marsh & McLennan, which lost 295 employees in the World Trade Center — sent a letter to the Obama administration’s Working Group on Financial Markets urging members to continue the Terrorism Risk Insurance Act as it is written.

“Marsh would expect significant and adverse market impact in the absence of the TRIA backstop, as insurers do not have sufficient capacity to meet the terrorism risk needs of policyholders,” said Ben Tucker, leader of Marsh’s Property Specialized Risk Group.

The potential for terrorism today is more diverse than years ago, with U.S.-based jihadist militants and groups that are not affiliated with recognized terrorist organizations such as al-Qaida, according to a report released Friday by the Bipartisan Policy Center which includes former members of the federal government’s 9/11 Commission. The report says, “Although it is less severe than the catastrophic proportions of a 9/11-like attack, the threat today is more complex and more diverse than at any time over the past nine years.”

Hartwig argued that if the program is scaled back, fewer buildings will be insured and the ultimate cost to the federal government could exceed the stop-loss if the government provides some financial bailout to rebuild a city that has little insurance coverage.

“The last thing the fragile U.S. economy needs is for any of these projects to be derailed,” Hartwig said.

Copyright © 2010, The Hartford Courant

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