Contact: Cary Schneider
(212) 346-5566
Date: May 20, 2002

Is Terrorism Relief Dependent on Another Attack?

Panel Warns Actuaries That Congress May Not Move On Legislation Unless Dire Warnings Of Future Attacks Come True

Citing recent White House warnings that terrorists will likely continue to target U.S. landmarks, panelists said that Congress has all the evidence it needs to enact federal terrorism insurance safeguards.

"Congress has clearly been put on notice because of news that the likelihood of an event, including possible weapons of mass destruction, is very high," said Robert Gordon, senior counsel to the U.S. House of Representatives' Committee on Financial Services. "Is the sky falling? No - but there are cracks all around," he added.

"Most of the loss associated with the next event will be uninsured," said Robert Graham, senior vice president and assistant general counsel for General Reinsurance Corporation.

With the reemergence of asbestos litigation and the already-heavy disaster losses of the past decade, "this is a loss environment of great uncertainty," said James P. Bonica, managing director and casualty practice leader for Marsh Inc. "Is secure capitalization as ample as we need it to be?"

The property/casualty industry paid $53 billion in claims and expenses in 2001, creating the third-worst year on record for the industry, Bonica said. And commercial insurers currently have between $80 billion and $100 billion to pay all claims, including terrorism-related losses, he said. The attack on the World Trade Center alone has been estimated as a $35 billion property/casualty loss.

Bonica told the gathering that the loss risks for workers compensation - already a weak market - could not be quantified in regards to terrorism. "Without workers' comp, you might as well put the lock on the door" to American business, Bonica said.

In turn, employers are working to reduce exposure to terrorist acts by reducing high concentrations of employees, as seen ion the World Trade Center, where entire businesses were leveled, Graham said. The New York landmark housed more office space than all of Houston, panelists noted.

The correlation of multiple insurance lines in the September 11th terrorist attacks created new dimensions of risk, he added. Rate deficiency "is significant and growing," he said. "The need to retool the underwriting process (for terrorism) is obvious."

One of the sticking points for a federal terrorism insurance solution may be that early definitions of "terrorist acts" were too broad - potentially allowing acts of vandalism to fall under proposed exemptions -- to win wide acceptance in Congress, panelists said. But Graham said that the source of terrorism is irrelevant. "I don't think the people of Oklahoma City were consoled by the fact that their terrorist was home-grown," he said.

Bonica added that it would be easier to develop terrorism insurance if the federal government would define "trigger limits," similar to disaster declarations, which would determine whether the event fell under contractual limits. With its experience as an insurance underwriter through the National Flood Insurance Program, the federal government may be unlikely to warm to a proposal to become the nation's terrorism insurance provider.

"A lot of people in government are afraid of creating another flood insurance program - a monster that won't go away," Gordon said. Yet the move would not be unprecedented. Panelists discussed federal programs during World Wars I and II that provided shipping insurance to make certain that foreign goods continued to be shipped to the United States. Though the policies made little, if any, profit, money continued to flow into the U.S. Treasury because of the commerce protected by the federal insurance programs.

"The real threat is, 'Where do we go from here?'," said Colorado Insurance Commissioner William J. Kirven, head of the National Association of Insurance Commissioner's Western U.S. Zone Committee. "We must be able top quantify events."

September's lethal attack on the World Trade Center "should compel responsible action," Kirven said. "Should we have to wait out another terrorist attack before the Senate is willing to act" on terrorism insurance relief, he added.

"I think its poor representation to say we have to suffer a second attack before we take action," Kirven said.

The Casualty Actuarial Society is an organization dedicated to the advancement of the body of knowledge of actuarial science applied to property, casualty and similar risk exposures.