TAXPAYERS TO PAY FOR TERRORISM INSURANCE
By: Adrian Taylor

Birmingham, AL -- President Bush recently signed into law a terrorism insurance bill. The measure comes fourteen months after the attacks on 9/11. The United States Government wrote a $90 billion policy as the "insurance of last resort" for future losses from terror attacks. President Bush had pressed Congress to pass the long delayed bill.

"Terrorism insurance," the president said in a statement, "will help get America's hard hats back on the job, create new jobs for America's workers and spur billions in new investment in construction projects all across the country. This bill comes at a critical time, as commercial construction is at a six year low.

Bush stated that in the wake of the terrorist attacks, many companies are unable to obtain affordable insurance for large construction projects. The economy and workers are hurting. President Bush further stated, "The bill will help ensure construction sites continue to operate, workers continue to fuel our Nation's economic engine, and the threat of future attacks on our economy is minimized."

The measure does not cover damage from the September 11 attacks. The attacks generated over $40 billion in insurance claims.

Senator Phil Gramm, Republican-Texas, opposed the bill. He fought the passage of the bill to the end. Gramm felt the bill overexposed taxpayers to losses and discouraged the development of a private terrorism insurance market.

The Senate voted 86-11 for the measure. The house had already passed the bill but the Senate had problems with Republicans efforts to fan all punitive damage awards in civil law suits related to terror attacks. Bush compromised with Democrats on the issues of unlimited punitive damage awards.

President Bush used his influence after the recent midterm election sweep, and contacted leaders of the GOP insisting that Congress complete the bill before adjourning for the year. Many members of Congress feel that the bill would have never passed in the lame-duck session had it not been for President Bush taking a personal interest in its passage.

Issues Surrounding the Bill

Two questions have presented themselves since the 9/ll attacks:

1. Should the insurance industry be required to subsidize losses from what are essentially foreign acts of war against the United States?

2. Who should pay the cost of another massive terror attack on the U.S.-The government or the insurance industry?

The passage of the Terrorism Insurance Bill answers those questions. So who pays? The taxpayer! They will pay the premium on the insurance policy.

Here is why the U.S. Government got involved:

It is nearly impossible to guess the possible damage that may occur from a future act of terrorism. Insurance companies have argued that without support from the Government in the form of back up insurance, the industry could be devastated by another disaster like the one seen 15 months ago in Washington, D.C. and New York.

Insurance companies now can provide coverage they had been denying customers. Insurance companies pay a small portion. The Government picks up most of the tab. If there are no major terrorism events domestically, then taxpayer liability is limited.

Here is how the bill works:

Federal payments would be capped at $90 billion the first year, $85 billion in the final year of the program. The Government will not be involved in claims for less than 5 million dollars. The measure will expire in 2005.

Insurance companies will pay a deductible equal to 7% of the premiums they received the previous year. In the second year of the program the deductible will rise to 10% and rise 15% in 2005.

Critics of the bill state that insurance companies have already collected hundreds of millions of dollars for premiums for terrorism insurance (based on their risk of paying), 100% of claims, the new measure now allows the insurance companies to pay out only 10 to 20 percent of any claims. Will insurance companies pay back premiums that will be due policyholders? Probably not! Critics also are concerned that one provision of the new bill gives insurers the right to by pass state regulators and charge whatever they want for coverage.

Major Disasters Insurance Companies Covered

Event/Insured loss (billions)

September 11, 2001 World Trade Center/140

August 1992 Hurricane Andrew/15.5

January 1994 Northridge, California (Earthquake)/12.5

September 1989 Hurricane Hugo/4.2

September 1998 Hurricane George/2.9

June 2001 Tropical Storm Allison/2.5

October 1995 Hurricane Opal/2.1

September 1999 Hurricane Floyd/1.96

March 1993 20 State Winter Storm/1.75

Source: Insurance Series Office, Inc.

Many consumer groups opposed the bill saying insurance companies don't need taxpayers to bail them out. Congress has given a gift to a rich and powerful industry. Conversely, Robert Vagley, president of the American Insurance Association, stated, "We believe this bill can significantly improve the marketplace for insuring against nearly infinite losses resulting from terrorism." One can only guess about the long-term role of the United States Government as an insurance underwriter.

Note: Senator Christopher Dodd, Democrat-CT was the chief sponsor of the bill.


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