He called the industrys proposal a “non-starter.”

Sen. Bill Nelson, D-Fla., who is the former insurance commissioner of Florida, testified that while the insurance industry faces a genuine problem, Congress should not rush in with legislation that puts taxpayers dollars at risk.

“I know from our experience in Florida that the insurance industry is more than willing to walk away from its biggest risks and turn them over to somebody else,” Sen. Nelson said.

Recalling his experience as commissioner in the aftermath of Hurricane Andrew, Sen. Nelson said that while insurers did pay out $16 billion in claims, the “major players” spent the rest of the 1990s trying to slip through state legislation that would shift responsibility for hurricane coverage to Floridas government and taxpayers.

At a minimum, he said, insurers should be required to cover a certain dollar level of retention before any risk is shifted to the federal government.

Moreover, Sen. Nelson said, any legislation should be done on an interim basis, enough to resolve problems that will arise from Jan. 1 2002 renewals. After Jan. 1, he said, Congress can resume its work and try to develop a more permanent plan.

But Sen. Charles Schumer, D-N.Y., said he is worried that without a longer-term plan, downtown New York will not be rebuilt. He also questioned whether Sen. Nelsons experience with hurricane coverage applies to terrorism.

Following Hurricane Andrew, Sen. Schumer said, no one from the federal government was putting out warnings saying the public should expect further events. Moreover, the nation has experience with hurricane losses. There is no experience with terrorism losses, he said.

The problem, he said, is that without a longer-term solution, banks will be unwilling to extend credit for rebuilding, since they will not be certain that their interests will be protected.

Those saying that the country should wait to see whether the private insurance market comes back are “playing with fire,” he said.

Sen. Nelson responded that he agrees that Congress is under the gun and that something has to get done for the first of the year. However, he said he does not believe a long-term solution can be achieved in the short time remaining.

Sen. Nelson added that he does not equate terrorism risk to hurricane risk, but he does know something about the nature of the insurance industry. The industry, he said, will try to dump risk if it can.

Mr. ONeill said that the administrations plan to share terrorism risks between the insurance industry and the government on a first-dollar basis in 2002 would provide a federal backstop while allowing the private market to develop.

Over the next two years, the industry would assume a greater share of the risk and the governments role would recede.

The country, he said, is “facing a cliff” on the first of January. Without a federal role, Mr. ONeill said, the insurance industry would either eliminate coverage or charge very high premiums for terrorism insurance.

The administrations plan, he said, would prevent the economic dislocations that will take place if private insurers follow the course they are on right now.

Sen. Gramm questioned whether the government should share losses on a first-dollar basis during the first year of the administrations plan. The insurance industry, he suggested, should be required to retain some percentage of the risk, since doing so would force the development of a private market for terrorism risks more quickly. Without that incentive, he said, insurance companies might come back to Congress in nine months saying that a private market has not developed and the government should continue first-dollar risk sharing.

Mr. ONeill responded that he is afraid that without first-dollar risk sharing, some “high visibility” targets of terrorism will have to pay very high premiums in order to get insurance next year.

He said he has no doubt the market for terrorism insurance will develop, but there could be a problem next year. The question is whether the private market can develop quickly enough to provide capacity for Jan. 1 renewals, he said.

For hearing testimony updates and House reaction to the industry plan, check NU Online News Service at www.NationalUnderwriter.com.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 29, 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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