N.Y. Superintendent Details Need for Federal Backstop for Terrorism Losses

New York Superintendent Gregory V. Serio testified recently before the U.S. House of Representatives Committee on Financial Services Subcommittee on Oversight and Investigations, detailing the status of the insurance marketplace and the need for a federal backstop for terrorism losses.

“The events of September 11th have raised many issues that need to be resolved; however, none is more crucial than the lack of coverage for acts of terrorism,” Serio said. “I strongly urge Congress to pass legislation that will, for a period of time, appropriately limit the industry’s exposure to future terrorism losses.”

Elaborating on the need for a federal backstop, Serio added that “the frequency and severity of terrorism losses are impossible to predict. With a backstop for terrorism losses in place, insurers and reinsurers will be able to appropriately price the risk because they will know the extent of their exposure to terrorism. And passing the risk on to consumers and expecting them to go without coverage is certainly not the answer.

“Appropriate federal actions, narrowly tailored through a public-private partnership, should not be viewed as a bailout of the insurance industry, but as a legitimate means to facilitate the appropriate response required by the insurance market.”

In his closing remarks, Serio commented that “The insurance industry and their regulators are responding to the worst disaster in our nation’s history and the current crisis calls for a measured approach where the federal government would facilitate the insurance industry’s response through temporary financial backing,”