Terrorism
Rocks The Insurance Industry, Consumer, And Government
By: Thomas M Kallman
Several federal legislators plan to propose a government sponsored
insurance fund to cover terrorism related losses in The United States.
The legislation could be introduced as early as this month. Published
reports state that the pool would cap private insurance and reinsurance
companies' liabilities in the first years of the plan.
A spokeswoman for the American Insurance Association said Sen. Christopher
Dodd, D-Conn., and Senator Charles Schumer, D-N.Y., are set to propose
a privately-financed, privately-run insurance fund, making the government
an insurer of last resort to help property and casualty insurers cover
losses from terrorism.
The government plan would cover anything above and beyond what the
insurance companies themselves could not pay for. The pool would cap
private insurance and reinsurance companies' liabilities at $20 billion
of damages in the first year of the program, and the private sector's
exposure would rise to half of the claims between $20 billion and
$40 billion by the third year. After that, the private market would
be responsible for all claims arising out of acts of terrorism.
Since the September 11 attacks, reinsurers have not been offering
new terrorism coverage. As of January 1, 2002 all existing terrorism
coverage between reinsurers and most property and casualty insurers
expire, and according to most published reports, reinsurers will not
offer terrorism coverage anymore. About 70 percent of U.S. commercial
policies with terrorism clauses expire on that date. Without that
coverage being available in the private market, banks may hesitate
to approve loans for a variety of companies from real estate and construction,
to retail and manufacturing.
In addition, all airlines around the world, will be required to collect
a War Liability passenger surcharge of US $1.25 per passenger, per
flight. The International Air Transport Association is currently reviewing
the method for all airlines to implement collection of the surcharge
which applies to flights on and from October 1 2001. New liability
insurance cover with respect to third parties for injury and property
damage arising from war / terrorist activity may be subject to a maximum
limit of $50 million for any one event; reduced from the previous
limit of up to $2 billion. This reduction means that should an aircraft
be involved in such a disaster, there would be substantial uninsurable
risk.
There are many companies in the U.S. that are going to pay claims
as a result of this tragedy in spite of the fact that they may be
holding policies that have exclusions regarding terrorism, or acts
of war. While the insurance industry will have the resources to cover
losses caused by the Sept. 11 terrorism attacks, there is a looming
crisis on future coverage.
Thomas Kallman is President of TMK Risk Management Inc dba Kallman
Insurance Agency at PO Box 266736, Weston, Florida 33326. Phone 954-389-5897.
Visit the website at www.tmkrisk.com. Your questions are always
welcome.
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