In testimony submitted on Capitol Hill, the Independent Insurance Agents of America (IIAA) strongly urged Congress to pass legislation to remedy the availability of terrorism reinsurance in the wake of the Sept. 11 tragedies.
IIAA submitted testimony for yesterday’s House Financial Services Committee hearing on the burgeoning terrorism reinsurance issue that has gained urgency in the last month.
Many domestic and foreign reinsurers have stated that they would no longer offer primary insurance companies reinsurance protection for acts of terrorism.
“Without a layer of reinsurance protection, most insurance companies warn that they cannot support repeated terror claims and will leave markets, exclude terrorism coverage or charge higher premiums that could make insurance coverage unaffordable and largely unavailable for many business owners,” said IIAA CEO Robert A. Rusbuldt.
The industry has been very clear that it can handle the $40 billion to $50 billion losses from the first terror attacks. But looking prospectively, the industry cannot and should not be expected to provide coverage for an uncertain number of attacks in the future — that cannot be scientifically modeled — without the establishment of a government mechanism that can provide a backstop for losses caused by terrorism.
“Although the insurance industry has responded efficiently and effectively to these attacks, we must now work to ensure that the industry is in a position to respond in similar ways to future terrorist attacks. In order to address these new challenges, we will need the leadership and assistance of the United States Congress and the Bush Administration to ensure that appropriate insurance coverage remains available,” Rusbuldt said.
IIAA supports the creation of a federal backstop to ensure that the industry will be able to continue offering coverage for damages caused by terrorism. By establishing such a backstop, the industry will be able to restore coverage for the millions of businesses that will otherwise be unable to renew their current policies and will be able to restore the confidence customers rely upon in securing their needs through all insurance policies.
The establishment of a federal backstop would help ensure the continued solvency of the insurance industry, stabilize premiums, allow reinsurance companies to have renewed confidence to underwrite primary insurers, and make terrorism coverage available to the buyers who urgently need it.
“Regardless of whether it is the stability expected from the proposed establishment of a U.S. Treasury federal backstop that the insurance industry agrees upon, a division of future terrorist claims between the insurance industry and the federal government suggested by the Administration, or a hybrid proposal, the core objective must be to ensure that a mechanism is instituted to enable small and large businesses to purchase insurance policies that might otherwise be unavailable or unaffordable in the wake of the September 11 attacks,” said IIAA Senior Vice President of Federal Government Affairs Maria L. Berthoud.
Failure to address this potential coverage gap will be felt not only within the insurance industry but by the national economy as a whole. “Without some kind of mechanism to cover terrorism losses, insurance protection would be difficult — if not impossible — to find, financiers would be reluctant to lend, and businesses would be hesitant to invest. The end result is an economic shockwave to the U.S. economy,” Berthoud said. “No one wants to return to an insurance market like the mid-to-late ’80s when the lack of available or affordable insurance altered the business and personal activities of Americans.”
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