A report issued by New York City Comptroller William Thompson Jr. makes a very compelling argument for the need for a federal terrorism insurance bill, according to the Alliance of American Insurers. But the comptroller’s decision to blame the insurance industry for the city’s inability to retain and attract new business is misguided, according to Alliance President Rodger Lawson.
“Following 9/11, insurers stepped to the plate to pay claims that resulted from what the President called an ‘act of war,’” Lawson said. “Since that time, we have repeatedly urged Congress to pass the terrorism reinsurance bill to provide a backstop for insurers who no longer have access to the reinsurance that was available to cover such catastrophes prior to 9/11.
“The potential for future attacks is great, and insurers must be able to spread the risk of another attack through reinsurance. They cannot be expected to risk their solvency by taking on more risk than is prudent. The terrorism bill currently before Congress would provide a backstop that would allow insurers to manage that risk.”
Lawson said the decision by the New York Department of Insurance not to allow insurers to exclude terrorism coverage, while 45 other states granted those exclusions, also had a negative impact on the situation.
“We realize that prices have risen dramatically. As the comptroller’s full report accurately depicts, commercial insurance had been under-priced for several years and the industry was just entering a cycle of rising premiums when the attacks occurred. Unfortunately, the timing of the attacks and the resultant decrease in reinsurance availability created a formula for the dramatic increases that have followed.”
The Alliance strongly agrees with the conclusions of the report that urge passage of the federal terrorism insurance bill and risk reduction by businesses. The Alliance does not support the creation of alternative market mechanisms that hinder the competitive private marketplace.
“Insurers want to write business, not turn it away. But that cannot be done without adequate financial resources and the ability to spread the risk,” Lawson concluded.