The Bush Administration has come up with an alternative to the insurance industry’s proposal for a terrorist risk pool in the event of further attacks. On Oct. 15, the White House proposed a plan that would divide the cost of property claims between the federal government and insurers.
The plan reportedly calls for the federal government to pay 80 percent, while the private sector would pay 20 percent of the first $20 billion of insured losses resulting from a terrorist act. Above $20 billion in insured losses, the government would pay 90 percent, and insurers would pay 10 percent. After three years, the government would withdraw, allowing private insurers to take over.
“We believe that over time the private sector will be able to expand its coverage,” the Wall Street Journal quoted an administration official as saying. “So we would like the government’s role to be temporary, and to recede as this develops.” Administration officials said they would begin lining up sponsors for the legislation this week, and may consider rewriting sections of the plan, according to the WSJ.
The White House rejected the insurance industry’s original proposal last week–which was modeled after a reinsurance pool established in London in the 1990s–as “anticompetitive” and “too complex” for the limited time available. Whatever solution is agreed upon will have to be implemented quickly, as Dec. 31 renewal dates loom. The program would need to start Jan. 1, the day after many existing insurance contracts expire.
“The bottom line is we need this legislation and we’re working very hard to make it come through,” said American Insurance Association spokeswoman Nicole Mahrt. “All sectors, all types of businesses, small and large, are going to be hugely impacted if this proposal is not put together…[President Bush’s] economic stimulus package will be thwarted if insurance is not available to wrap around investments and spending and all that, so this is crucial for the U.S. economy, because insurance makes business possible.” The National Association of Insurance Commissioners has estimated that losses from the Sept. 11 attacks would surpass $20 billion.
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