Spreading the Risk of a Jihad
By Robert Warne - December 5, 2001The majority of commercial/property insurance policies are due to expire in 26 days and members of Congress are still at odds over the language of a bill to distribute the risk of underwriting terrorism. Traditional models used to predict risk are useless when it comes to pricing the risk of a jihad.
Short-term legislation is being proposed to protect both the insurer and the policyholder in the event of future terrorist attacks. Writing a bill that will address the needs of government, the insurance industry, policyholders and taxpayers without being too one sided has spurred passionate debate.
Despite strong opinions on how the bill should be written, The Terrorism Risk Protection Act (H.R. 3210) passed the House with a 227-193 party-line vote Nov. 29. The bill was introduced by Michael G. Oxley (R-OH), the House financial services chairman and Richard H. Baker (LA), of the House capital markets subcommittee.
"We have completed our initial work in the House, and now it’s time for the Senate to act," said Oxley. "It’s time to help those Americans who are working to create jobs—the guy who’s trying to buy a business, expand a manufacturing plant, or construct a new building. The 9/11 attack is over, but the economic terrorism goes on and on unless we act."
President George W. Bush expressed his support for the bill in this statement, "I commend the House for taking an important step toward ensuring the continued availability of insurance for terrorist-related acts and for ensuring that victims of terrorism don’t also become subjects of unfair lawsuits. Access to affordable insurance is necessary for a stable and productive economy where builders continue to build and investors continue to invest. It is time for the Senate to focus on this important issue.
Baker said, "I declare this a victory for taxpayers, a lifeline for the economy, and the right thing to do at the right time."
But where there’s smoke, there’s fire. Members of the Senate are floating their own ideas and proposals for a more ideal bill.
Sen. Christopher J. Dodd (D-Conn) voiced his opinion of the current legislation to the Washington Post when he said, "I know nobody, except the House authors of that program, who think it works."
Opponents of H.R. 3210 say there is nothing in the bill that guarantees insurers will provide terrorism coverage for all business sectors. Rep. John J. LaFalce, ranking democrat of the House financial services committee wants a terrorism bill passed but voted against H.R. 3210. He argued, "We must be careful not to facilitate ‘cherry picking,’ where companies insure ‘good risks’ and leave other segments of economy uncovered."
LaFalce suggested, "We can and should avoid that problem by ensuring that terrorism coverage is required as part of basic property and casualty coverage…"
The current Terrorism Risk Protection Act includes language that would limit liability, cap attorneys’ fees, prohibit punitive damages and designated a federal court for all law suits arising out of a terrorist attack. This has sparked a variety of responses.
Rep. William D. Delahunt (D-Mass.), according to the Washington Post, described these measures as, "An effort to further erode the rights of victims."
Rep. Louise Slaughter (D-NY), shared a similar opinion with the Associated Press when she said, "the liability provisions were a heavy-handed attempt to curtail victims’ rights."
Oxley responded, "Liability reforms were included to streamline the compensation process for victims, maximize recoveries for the most serious injuries, protect blameless American taxpayers from unlimited liability and limit the damage to the U.S. economy."
The Houston Chronicle voiced it support for the bill in an editorial that said, "Important within this legislation is the necessity to limit or deny punitive damages, the favored spigot of plaintiff layers, in cases of terrorism. Taxpayer’s dollars shouldn’t go into the pockets of plaintiff layers."
Another section of H.R. 3210 provoking discussion is an amendment to the Internal Revenue Code to provide terrorism commercial lines tax incentives to build up reserves to a specific limit.
There is no justification for the tax provisions in the bill, said LaFalce. "This unnecessary tax relief provides the industry with a long-term subsidy which could well exceed what it pays under the bill."
Some critics think that the insurance industry can handle another catastrophe and that the "invisible hand" of the market will remedy the situation. Their argument is that since Sept. 11, insurers have warranted higher premiums for an industry, according to the Washington Post, that made $27 billion last year.
Sen. John McCain (R-AZ), who released his own terrorism insurance act proposal Nov. 29 said, "While there are few people in the Senate more skeptical than I of providing federal assistance to corporations or involving the federal government in private industry, the proposed wholesale cancellation of terrorism insurance coverage following the devastating events of September 11th, dictates that Congress act before the end of this session to ensure that this coverage continues to be available and affordable."
Even J. Robert Hunter, the insurance director for the Consumer Federation of America said to the Washington Post, "I do think there’s a strong case for some kind of federal backstop even though I think that they probably don’t need it."
Rep. Christopher Shays (R-CT) said, "It’s not about the insurance industry, it’s about the economy. I view this bill as the stimulus bill in Congress."
The authors of H.R. 3210 have expressed their willingness to be flexible to some degree. The ball is now in the Senate’s court. | 
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