U.S. terror cover debate heats up

As the Canadian government waits to take its lead from the U.S. on a terrorism reinsurance solution, lobbying efforts south of the border are intensifying. Risk and Insurance Management Society (RIMS) president David Mair was on Capitol Hill this week, urging Congress, on behalf of commercial insurance buyers, to move forward on a plan.
“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,” he testified, referring to the lack of terrorism coverage available from insurers. The unavailability of coverage came about as reinsurers withdrew terrorism coverage from their contracts with insurers upon yearend renewals.
Mair, who is director of risk management for the U.S. Olympic Committee, says that his own organization could not secure coverage until the day of the event’s opening ceremonies, and even then with limits reduced by 45% and a premium increase of 250%.
He says that the necessary federal response is not a bail-out for the insurance industry but a business need of the country’s corporations, and not just those considered “high risk”.
While Congress did pass a terrorism insurance bill in November of last year, the Senate has yet to follow suit, halting the process of actually putting any system in place.
This has put investors and lenders on alert as many companies have been unable to obtain coverage for terrorism risks, or have been forced to pay exorbitant rates for reduced coverage.
“The need for a federal reinsurance backstop is as critical today as it was in the fall,” he says. “Perhaps even more so as our economy struggles out of recession and the insurance markets fight to rebuild capital.”
Insurance buyers are getting support from two sources: a recent report by the U.S. General Accounting Office (GAO) and Federal Reserve chair Alan Greenspan. Although Greenspan said it was still unclear what the economic impact would be if a federal backstop plan was not in place, he admits that with the potential for future terrorist attacks comes the need for assurances that corporate America will be covered.
The GAO report also stated that there was certainly a need for coverage and notes that bank loans and business projects have been placed in jeopardy or cancelled due to the absence of coverage.
Mair says that notwithstanding evidence that the lack of coverage has been damaging, Congress should not be waiting for negative business effects before taking action.