“Companies right now dont know how to price a terrorism product, even with the [federal] terrorism backstop,” explained Robert A. Rusbuldt, chief executive officer for the Independent Insurance Agents & Brokers of America based in Alexandria, Va. With all the talent companies have hired to help them determine the price, he said, there is simply not enough experience in this area for insurers to confidently rate the coverage, and when they do come up with a cost, the next question will be whether it is affordable for the client.

Agents, Mr. Rusbuldt continued, want answers to liability disclosure issues, work-flow concerns, and how the product will affect their commercial lines clients, all of which depend in part upon how the government's regulations play out.

From conversations he has had with insurers, it appears that carriers are “responding in a positive way” to the act, said Joel Wood, senior vice president of government affairs for the Council of Insurance Agents & Brokers in Washington, D.C. It will be months before the Treasury Department comes out with its final set of regulations, and insurers cannot wait that long to take care of business, legally or practically, Mr. Woods said.

While he, too, felt the major question surrounding the product is pricing, he said it would come down to the individual risk. He also took issue with some critics who say the measure is a subsidy to the insurance industry, which might tempt carriers to give the product away to secure a key account, or–at the other extreme–might result in companies taking advantage of clients by overcharging for terrorism coverage.

“I think it is neither going to be a give-away or price-gouging, but will depend on the individual circumstances,” said Mr. Wood. “There will be some properties in Manhattan that are still going to be facing substantial increases, but I think companies can get their arms around it and be competitive.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 6, 2003. Copyright 2003 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.