Disclosing Terrorism Risks Could Force Congress To Act
With the credibility of corporate financial statements in severe doubt following the Enron scandal, a report that the U.S. Securities and Exchange Commission might require firms without terrorism insurance to disclose that fact to investors makes sense.
The SEC's consideration of this new mandatory disclosure couldn't have come at a better time, as public skepticism about the true financial status of publicly traded companies is at its peak. With auditors allegedly corrupted by consulting contracts, and the integrity of stock analysts potentially compromised by investment banking fees, anything the SEC can do to assure full disclosure of a company's liabilities–including terrorism exposures–would be welcome.
Mandatory disclosure would prove that Corporate America is facing a potentially huge, uninsured exposure following the Sept. 11 terrorism attacks. That fact could prompt Congress to pass a long overdue reinsurance backup mechanism so that companies are not left bare.
The U.S. General Accounting Office is scheduled to release a report later this month on the impact of Sept. 11 on the availability and affordability of terrorism coverage. However, should GAO's findings fail to spur Congress to act at this time, or should political battles over tort reform derail efforts to pass a bill, mandating ongoing disclosure of terrorism exposures at public companies would provide a much more comprehensive database that could be used to make a more compelling case down the road.
Investors have a right to know whether a company is financially covered in case of another terrorist attack. Of course, it would be preferable if firms didn't have to go bare on such a catastrophic exposure, but disclosure of their vulnerability could end up forcing Congress to make sure that insurance coverage is at least available to those who want it.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 18, 2002. Copyright 2002 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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