The nation’s property and casualty insurers reported $8.47 billion in net claims (1) arising from the Sept. 11 terrorist attacks, according to research by Weiss Ratings Inc.
Two groups of insurance companies, Berkshire-Hathaway and Hartford Fire & Casualty each had two companies among the top 10 insurers reporting the largest claims. Combined, the four companies—General Reinsurance Corp., National Indemnity Co., Hartford Fire Insurance, and Hartford Accident and Indemnity Co.—lost nearly $3 billion from Sept. 11 claims.
“The losses from the terrorist attacks made a big dent in the capital of some firms, especially General Reinsurance,” Martin Weiss, chairman of Weiss Ratings Inc., said “However, even in this worst-case situation, the companies still had adequate capital to cover the losses. Most insurers were positioned to weather the losses through reinsurance coverage and strong capitalization. Unfortunately, despite the industry’s strength, this catastrophic attack will result in yet another round of rate increases for consumers.”
Last year’s terrorist attacks contributed to the property and casualty insurance industry’s first-ever loss and propelled the Insurance Services Office (ISO) to create a terrorism exclusion clause for commercial policies. The new language, adopted by 45 states, Washington, D.C., Puerto Rico, and Guam, (2) excludes coverage on claims arising from acts of terrorism.
Of the five remaining states, New York and California are considering revisions to the ISO exclusion, while Texas and Florida have yet to rule on any form changes. Only one state, Georgia, rejected the new terrorism exclusion language.
Since last year, Congress has debated the issue of a federal backstop for insurance against terrorism. The program would require the federal government to subsidize a percentage of insurers’ losses from terrorism-related incidents. Both the House of Representatives and the Senate have passed legislation on a federal program.
The House proposal (HR3210) requires the insurance industry to be responsible for terrorism damages up to $1 billion, with federal funding available for $5 billion or more in damages. The two-year plan limits the federal government’s exposure to $100 billion in claims.
Under this proposal, all insurers, regardless of their level of exposure, would be required to reimburse the federal government for loans paid out under the plan. Even companies that receive no federal funding from this program would be obligated to assist in the repayment. This plan allows insurers to pass some of the costs along to policyholders in the form of surcharges.
In contrast, the one-year, Senate-approved legislation (S2600) requires insurers to cover terrorism-related damages up to $10 billion. The backstop program would provide relief to insurers for damages in excess of $10 billion and limit the government’s exposure to $100 billion in claims.
However, the Senate proposal does not require insurers to repay any of the monies, leaving the full burden for funding on taxpayers.
“Both proposals place a huge burden on consumers, and neither bill offers an adequate long-term solution for addressing new challenges associated with the increased risk of terrorism,” Weiss cautioned.
• (1) Net claims equal gross claims plus reinsurance assumed less reinsurance ceded.
• (2) Source: International Risk Management Institute (www.irmi.com)
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