The House bill would provide loans from the federal government to help insurers handle terrorism-related claims. Under this approach, selected primary insurers that have to cover terrorism exposures–such as workers' compensation carriers–might benefit from a loan program that could ease their short-term claims burden in case of another terrorist attack.

However, the House version would fail to address the fundamental problem underlying this entire debate–the unwillingness of most insurers to write terrorism coverage because there is no private reinsurance to back them up. As AIG's chairman and chief executive officer, Maurice Greenberg, said in an appearance on “The Charlie Rose Show” last December: “We lost reinsurance; we need reinsurance. We don't need loans.”

The Senate bill is much more helpful. It would create a quota-share reinsurance program. The industry would still have to take a significant hit (up to $10 billion in terrorism losses) before the feds would step in. (That should put talk about a “bailout” to rest.) The government would pay 80 percent of the losses between $10 billion and $20 billion, and 90 percent of losses between $20 billion and $100 billion.

This difference in approach between the House and Senate will be difficult to reconcile. A hybrid could emerge, in which insurers are offered loans to help them through the first $10 billion in losses, while the quota-share program kicks in above that level.

However, that's not the only significant difference between the bills. The two houses of Congress also parted company on tort reform, which could yet sink the entire legislative effort.

The House bill, H.R. 3210, includes a prohibition against punitive damages in tort suits filed against U.S. businesses hit by terrorist attacks. Over in the Senate, where tort reform disputes between pro-business Republicans and pro-trial lawyer Democrats held up action for months, the bill that finally passed, S. 2600, has far less extensive reform provisions.

Good luck to the House-Senate Conference Committee that has to work out these fundamental differences, especially with the possibility looming that President Bush might veto any bill without some reasonable tort limitations. But the bottom line is that Congress must come through with a bill that will make sure risk managers have access to terrorism coverage, and that carriers remain solvent to pay claims.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, June 24, 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.