Report: Insurance industry is limiting terrorism coverage
The study, requested by House Financial Services Chairman Michael Oxley, R-Ohio, found a limited market for insuring against such catastrophic attacks, with many companies excluding nuclear, biological, chemical or radiological attacks from their property-and-casualty coverage, even though some of those exclusions could be challenged in court.
Additionally, federal auditors found that workers' compensation, life and health insurers cover such catastrophic risks, although companies that provide such policies said the prices they charge might not cover their potential exposure in the event of a nuclear, biological, chemical or radiological attack.
"Given the challenges faced by insurers in providing coverage for, and pricing, NBCR risks, any purely market-driven expansion of coverage is highly unlikely in the foreseeable future," the GAO reported.
The report will be highlighted by those advocating that Congress reauthorize the federal government's terrorism risk insurance program, which expires at the end of 2007, against those who would prefer more of a free-market approach.
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 report comes one day before the House Financial Services Capital Markets and Oversight subcommittees hold a joint hearing on proposals to reauthorize the program. The Treasury Department is scheduled by the end of the week to release its report on recommendations for a long-term fix.
Even though the program does not expire for 15 months, lobbying groups are gearing up. The most prominent group is the Coalition to Insure Against Terrorism, which represents most of the stakeholders, including AIA, the Real Estate Roundtable, the U.S. Chamber of Commerce and the National Association of Realtors.
But members of the coalition have different views for a permanent fix. For example, 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.
The AIA has taken a dim view of the pooling proposal for terrorism risk insurance, unsure it would create capacity for insurers to participate in the market. AIA President Marc Racicot said he believed all groups could work together to reach consensus.
"The fact is I don't think anyone is irretrievably entrenched in any particular approach forward. We have begun, perhaps, from different perspectives, with certain presumptions in mind -- mainly that TRIA has worked. We are beginning to explore concepts and to work with one another to come up with the best policy perspective that we can," Racicot said.