Businesses with current coverage, Mr. Hunter said, should demand “immediate and sizable” refunds of terrorism insurance premiums.

“My analysis shows that the typical business with terrorism coverage should get back about 40 to 50 percent of its premium for a full year, or 20 to 25 percent for a half year of remaining coverage,” he said.

Mr. Hunter said that he reached this estimate based on how much less insurance companies would have to pay under the recently enacted terrorism insurance law than before its enactment in the event of a future terrorist attack.

Before President Bush signed the bill, Mr. Hunter said, taxpayers were liable for 35 percent of all insurance losses, based on the federal corporate write-off rate.

But under the new law, he said, insurance companies will pay 53 percent less for a mid-sized terrorist attack–one with average losses of $25 billion–and 68 percent less for a large attack with average losses of $40 billion.

Adding some assumptions about the percentages of losses that will be paid out in each size category to his analysis (including small attacks for which insurers will see no savings), Mr. Hunter concluded that the overall cost savings to insurers and businesses is 46 percent.

Julie Gackenbach, assistant vice president of government relations with the Des Plaines, Ill.-based National Association of Independent Insurers, criticized Mr. Hunters numbers as based solely on conjecture.

The problem with developing a premium and underwriting structure for terrorism risks is that while insurance companies can develop a model based on severity, Ms. Gackenbach said, there is no model based on frequency.

But Mr. Hunter seems to base his numbers on frequency despite a lack of data, she said.

Ms. Gackenbach also challenged Mr. Hunters assertion that taxpayers are already on the hook for 35 percent of losses, based on the corporate write-off rate.

The 35 percent figure, she said, is simply the top tax rate. Where there is no income, Ms. Gackenbach said, there is no tax due.

But this is not really as expense borne by taxpayers, she said. And in any event, insurance companies that do experience substantial losses and thus have no income, may still be hit by the corporate alternative minimum tax.

Gary Karr, a representative of the Washington-based American Insurance Association, blasted the report.

“We have consistently said that CFA does not represent the consumers of commercial insurance,” Mr. Karr said.

CFA, he said, has consistently misrepresented the status of the market and what the terrorism backstop will do.

This latest report, Mr. Karr said, misrepresents how insurance works.

Moreover, Mr. Karr said, prior to the Sept. 11 attacks, insurers were giving away terrorism insurance coverage, not even charging a premium.

Since Sept. 11, he added, many real consumers have not been able to get coverage due to the lack of a backstop. That is a real crisis, Mr. Karr said, and Mr. Hunter consistently misrepresents that.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, December 8, 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.