The American Insurance Association (AIA) testified before the New York State Assembly Insurance Committee that terrorism risk is unlimited, and therefore cannot be covered by the private insurance market, arguing for the necessity of a federal backstop.
“It is critical everyone recognize that we are dealing with a peril that is not quantifiable and therefore not insurable within the finite resources of the private insurance market,” said Eric Goldberg, AIA assistant general counsel. “Quite simply, the financial capacity of our industry is limited, while the potential harm that terrorists can inflict is unpredictable in frequency and unlimited in severity. Given this, insurers cannot assess, measure or spread the risk of terrorism.”
Goldberg told the committee that the lack of a federal backstop to provide protection against terrorism risks is creating an insurance market crisis in which coverage for commercial risks is hard to find and costly.
Goldberg also noted that AIA is proud of the way its member companies responded to the September 11 attack. Insurers put catastrophe teams to work in New York quickly and have worked closely with policyholders and state officials to expedite the payment of claims.
In addition to pressing the need for a federal backstop, Goldberg told the committee that AIA would work with state regulators and lawmakers to find ways to create more stability and predictability in the marketplace to provide consumers with the best access to insurance coverage options possible.
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