Six weeks following the attacks on New York and Washington, insurance companies and regulators are still working on a plan to make sure future terrorist strikes are covered.
According to a report in the South Florida Sun-Sentinel, while the administration is encouraging a plan that places an increasing percentage of the financial responsibility for paying claims on the insurance companies, the industry wants an additional security net.
Both proposals were discussed Oct. 22 at the National Association of Insurance Commissioners meeting in Washington, D.C. The latest White House proposal calls for the industry to pay 20 percent of the first $20 billion in losses from terrorist attacks in 2002. The federal government would pick up the other 80 percent. For claims more than $20 billion, the industry would pay 10 percent of the bill, according to Sheila Bair, assistant secretary with the Department of the Treasury.
In 2003 and 2004, the percentage the industry has to pay increases. After three years Congress can determine whether to extend the helping hand or not depending on how many insurance companies were selling terrorist insurance, Bair commented.
With the White House proposal, the industry would actually sell the insurance and pay the claims. It would be reimbursed by the Treasury at a later date.
But insurers say this plan will not succeed unless the government sets up some sort of safety net — a terrorism pool that would provide reinsurance or insurance for insurers. The heads of several of the nation’s largest insurers told the state insurance commissions that without this type of reinsurance pool — which insurance companies would pay money into based on their size — smaller companies would be hurt because they would have to pay the money up front.
They also said that insurance companies have no way to put a price on terrorism insurance because terrorist attacks and the amount of damage they cause cannot be predicted.
Money for the White House plan would be appropriated each year – up to $100 billion, Bair said. Money to start the terrorism pool would come from federal loans, Kelly said, which insurance companies would pay back at a later date.
Both the regulators and companies agree that the federal government needs to act in the immediate future. Many insurers need to tell their states within the next couple of weeks whether they will provide terrorism insurance.
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