The Alliance of American Insurers has pointed to the U.S. Congress Joint Economic Committee’s (JEC) new study The Economic Costs of Terrorism, as further evidence that federal terrorism reinsurance legislation is needed.
“These members of Congress clearly understand the toll that the terrorism insurance crisis is taking on our nation’s economy,” David Farmer, Alliance senior vice president of federal affairs, commented. “A federal backstop is needed. This legislation is about restoring stability to insurance markets and, in turn, to all the aspects of our economy that depend upon insurance. The cost of terrorism has already been far too high. The Senate should act now to pass terrorism insurance legislation to ensure our economic recovery.”
Under suggested policy responses, the JEC study states:
“Provision of continued terrorism risk insurance poses a difficult, complex dilemma for government policymakers. It is difficult (or impossible) for private firms to accurately price or calculate the new risks of terrorism and private insurers may not be able to absorb additional catastrophic losses from terrorist attacks. As a result, private insurers have backed away from providing terrorist risk coverage. On the other hand, an absence of the availability of widespread terrorist risk insurance will entail significant, substantial costs and consequences to the macro-economy. Consequently, an argument can be made for a public sector role in this case. In particular, federal government policy should be to facilitate the provision of insurance for terrorism, albeit as much as possible from the private sector; i.e., government programs should encourage participation by private insurance providers. Consequently, a temporary and limited backstop for terrorist insurance appears to be appropriate (possibly involving a government risk sharing program).”
The JEC is an advisory panel established by Congress to review economic conditions and to recommend improvements in economic policy. It is one of only four Joint Committees of Congress, composed of members from both the U.S. Senate and the House of Representatives.
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