This likely reflects a new realization in the wake of the attacks that this type of risk might be uninsurable. The fact that suicidal terrorists could hijack four domestic airliners and use them as weapons to kill thousands of innocent people and destroy the World Trade Center came as a shock to the system. No one in the insurance industry could have anticipated this type of attack.

As national security analysts continue to examine other ways that the United States might be vulnerable to terrorism, including the possible use of chemical and biological weapons, the unpredictability of potential losses will discourage the private market from underwriting this risk.

To get legislation through Congress on an emergency basis, it is important that the insurance industry develop a realistic consensus plan and present it to Capitol Hill and the Bush Administration with a single voice.

But already, different proposals are emerging that could destroy industry unity. One proposal, developed by the American Insurance Association, calls for an industry-run reinsurance pool subject to federal oversight. The government itself would step in as the reinsurer of last resort if a major event occurs that drains the pools reserves. The AIA plan would only cover property-casualty insurance.

Meanwhile, the Alliance of American Insurers is calling for a pool directly managed by the Treasury Department, financed by reinsurance premiums. Again, if pool reserves are drained, the government would step in. The Alliances plan would cover both p-c and life insurance.

Undoubtedly, other ideas will surface. While it is generally a good thing to have a variety of options presented that are open to debate, it also raises the possibility that the industry will find itself walking down the same path that led to the failure of the Natural Disaster Coalition.

When the Natural Disaster Coalition emerged, there was a widespread, although certainly not unanimous view that federal involvement in financing catastrophic risks was necessary. However, when the industry tried to develop a politically viable proposal, unity broke down and the coalition failed.

Hopefully, that will not happen again. Compromise is an essential part of the legislative process, as well as an understanding that not everyones parochial concerns can be addressed. In this time of national need, we hope the different industry factions will keep that in mind.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 8, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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