Battle lines form over terrorism insurance program’s future
The American Insurance Association, representing major insurance groups, is advocating the federal government assume financial responsibility for all chemical, nuclear, biological and radiological attacks and continue a program similar to the current program for "conventional" attacks.
The Real Estate Roundtable, representing major commercial property owners, is pushing a voluntary system for insurance companies to establish their own pools similar to a system operating in Great Britain.
Congress will be forced to tackle the issue because the current program expires next year. The administration has been skeptical of the program, noting that it has achieved its purpose of stabilizing the insurance market but still carries the potential of a taxpayer bailout. One lobbyist said he is convinced Treasury will advocate a private-market system for terrorism risk.
But Treasury Secretary Henry Paulson was supportive of the program when he served as CEO of Goldman Sachs, and it is still believed to have support within Congress.
In a June 23 letter to the Treasury Department, House Financial Services Financial Institutions Subcommittee Chairman Spencer Bachus, R-Ala., noted there is still a limited amount of private sector terrorism reinsurance available, with only $6 billion to $8 billion to cover foreign acts of terrorism -- a figure that does not include nuclear, biological or chemical attacks.
"Terrorism insurance is unique. And it uniquely requires a private-public partnership, and quite frankly a significant participation by the federal government, which the current program envisions if, God forbid, we ever have an attack," said Leigh Ann Pusey, chief operating officer for the AIA. "We need that partnership in order to get our hands around the risk."
Pusey said her group is not reflexively opposed to a pooling system, but AIA has not been persuaded that such proposals would be able to create capacity for insurers to participate in the market.
"I don't think their proposals are dead in the water. I just don't think they are responsive to real-market dynamic that is going on," she said. "The insurance industry has not tended to run to pools."
Advocates for the Real Estate Roundtable's proposal will be lobbying lawmakers Tuesday in support of the plan, which would create a nonprofit reinsurance company to offer primary insurers coverage for nuclear, biological, chemical and radiological incidents as well as group life.
The system would be primarily funded by insurers and the premiums that they collect, but also might include private insurance, bonds and post-event surcharges.
Jeffrey DeBoer, president and CEO of the Roundtable, said the proposal would "create a layer of private capital between primary insurers and the federal government -- providing continuity to the marketplace so that policyholders could get the coverage they need, while reducing taxpayer potential risk."