June 11, 2002 by Canadian Underwriter
Democrats in the U.S. Senate have pushed a bill to create government-backed terrorism reinsurance onto the agenda. Bypassing the committee phase, Senator Christopher Dodd, co-sponsored by Senators Harry Reid, Paul Sarbanes and Charles Schumer, have moved the bill onto the Senate’s agenda.
The contents of the plan differ from a House plan created late last year, which would have consisted of loans to the insurance industry in the event of future terrorist attacks.
Amid concerns of a slowdown in the economy, particularly in construction and real estate, given the lack of available terrorism reinsurance, the Senate is proposing the government act as an excess reinsurer. The “Terrorism Risk Insurance Act of 2002” would extend cover for 90% of losses beyond $10 billion. Beyond $100 billion, 100% of losses would be covered. Insurers’ portions are to be determined based on marketshare for losses below $10 billion.
One sticking point, the issue of tort access, is dealt with by a provision restricting federal money being used to pay for punitive damages. Terrorism-related lawsuits would also be consolidated in federal court under the terms of the bill.
The provisions of the bill will last only until the end of 2002, but an extension into 2003 is allowed if deemed necessary, with the deductible raised to $15 billion.
In putting forward the legislation, it is noted that “widespread financial market uncertainties have arisen following the terrorist attacks of September 11, 2001, including the absence of information from which financial institutions can make statistically valid estimates of the probability and cost of future terrorist events, and therefore the size, funding, and allocation of the risk of loss caused by such acts of terrorism”.