Industry, Legislators Ponder Formation of Terrorist Risk Pool

October 10, 2001

The idea of creating a federally backed insurance pool to guard against future acts of terrorism is gathering steam on Capitol Hill. The Wall Street Journal reported on Oct. 9 that top-level insurance executives and legislators have been in meetings to discuss the terms of the legislation.

The new system would be loosely based on a model pool formed in Britain after a series of major bombings in the 1990s. Basically the plan calls for U.S. insurers to pool billions of dollars which they could then draw from for the reinsurance of future terrorism-risk policies provided to U.S. businesses, excluding acts of war and natural disasters. Beyond the resources of the pool, the federal government would chip in funds.

This would in effect make the government “the insurer of last resort for practically all businesses that suffer future terrorist attacks,” according to the WSJ. The plan is aimed at completion by Dec. 31.

With a capital cushion of more than $300 billion, the property-casualty insurance industry has stated its ability to pay losses from the terrorist attacks of Sept. 11, but future attacks might jeopardize its ability to offer terrorist coverages. Some form of government intervention to limit potential future losses would help to remediate the problem.

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