The Sept. 11 insurance crisis

Outside editorial

Posted: Thursday, November 29, 2001

The following editorial appeared in Wednesday's Chicago Tribune:

If Congress wants to protect the American economy, it has to make sure American business doesn't face a monumental New Year's Day hangover.

Many businesses and property owners will no longer be insured against terrorist attacks on that date. That's because companies that reinsure property and casualty insurers - allowing the insurers to lay off some of their risks - have announced they will no longer provide terrorism coverage. Some 70 percent of those reinsurance policies expire at year's end.

Without coverage, banks won't lend money to big new real estate projects and owners of everything from hotels to shopping malls to factories will find themselves exposed. This is no small thing. This is a risk of economic paralysis.

The threat of a terrorist attack in the U.S. had been deemed low before Sept. 11; suddenly it has become an unquantifiable, terrible reality. Insurance risks that can't be measured can't be priced. Unable to price the risk, companies are opting not to provide the coverage.

Over time, the insurance industry can solve this problem just as it has when faced with other extraordinary risks. But time is something neither the insurers nor the insured have right now. These policies expire in 33 days. Companies are being notified that, as of Jan. 1, their coverage will be canceled.

The solution is for the federal government to act temporarily as insurer of last resort for losses from terrorism. The insurance industry should be responsible for damages from terrorist attacks up to a defined amount for a temporary period. Beyond that amount, the government should step in and assume liability.

The members of Congress understand this, but they are deadlocked on how to proceed.

Under one proposal, the government would pay 80 percent of the first $20 billion in terrorism losses in a year. Bad idea. The industry must still be liable for substantial, first-dollar losses, with the government stepping in only to cover catastrophic losses. And temporary must mean temporary. Set a sunset date. Congress is debating whether insurers - and by extension the government as insurer of last resort - should be shielded from punitive damages. Yes, there should be restrictions.

The insurance industry estimates that claims from the Sept. 11 terrorist attacks likely will total $40 billion to $70 billion. Insurers say they will pay every penny, as they should. Congress's job is to make sure that insurance remains available at this critical moment. Over time, the government will step out and private companies will again assume all the risk, at the cost of higher premiums, of course. That's a reality in a post-Sept. 11 world.

The government is being asked to manage a crisis, not to bail out an industry. That's what should guide the decision-making.

But it's time to make a decision.



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