The Risk and Insurance Management Society, Inc.’s President, David Mair, testified Feb. 28 before the House Financial Services Subcommittee on Oversight and Investigations on the necessity of terrorism insurance legislation. The absence of Congressional action to provide a federal terrorism reinsurance backstop has left businesses in a tenuous state.
As director of risk management for the United States Olympic Committee (USOC) and as president of the largest risk management association in the world, Mair spoke of the difficulties risk managers face in trying to place the coverage they previously held, while at the same time battling astronomical price increases.
“Businesses have, since January 1, assumed nearly all of the risk of owning commercial property and operating in a country that has been targeted for destruction by the most unpredictable type of enemy,” Mair said in his testimony.
Mair also described to the Committee the USOC’s difficulties in obtaining coverage. After discussions with more than 40 companies, the USOC was finally able to secure general liability coverage on the day of the Opening Ceremonies. However, this coverage included a reduction in limits of 45 percent and a premium increase of 250 percent.
Businesses are facing a risky future. Legislation is not an issue of bailing out the insurance industry, Mair explained, but an issue of protecting and preserving the U.S. economy in the event of another major terrorism attack.
Companies are still enduring agonizing renewal processes and are concerned about shareholder reaction if their lack of terrorism coverage was publicly revealed, Mair explained. Many of these companies are being offered only $1,000,000 in terrorism coverage, in contrast to the hundreds of millions of dollars of terrorism coverage they received in previous years. These accounts of economic hardship are not relegated exclusively to “high-risk” areas. The affected membership of RIMS spans the country, and includes small, mid-sized and large businesses.
Mair commended members of the House for passing a terrorism insurance bill in Nov. 2001. He urged these members to encourage their counterparts in the Senate to approve legislation as soon as possible.
“The need for a federal reinsurance backstop is as critical today as it was in the fall,” Mair commented. “Perhaps even more so as our economy struggles out of recession and the insurance markets fight to rebuild capital.”
As more insurance contracts come up for renewal, companies will face increasing difficulties. This drag on the economy could further slow economic recovery.
Approximately 70 percent of all reinsurance policies expired at the end of 2001. Most reinsurers refused to include terrorism coverage in 2002, leaving the insurance industry without the financial backstop that reinsurance provides.
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