Republican lawmakers on Wednesday criticized an administration proposal to have the government pay a major share of insurance costs from future terrorist attacks, saying the measure could make taxpayers liable for big payments before insurers chip in.
"I have real problems with the federal government guaranteeing profits" of insurance companies, Sen. Jim Bunning (R-Ky.) told Treasury Secretary Paul O'Neill at a hearing Wednesday.
Consumer groups also criticized the plan.
"Congress should not create a program where the insurance companies collect the premiums while the taxpayers wind up paying the bulk of future terrorism losses," said Frank Torres, legislative counsel for Consumers Union.
O'Neill said the White House is willing to work with lawmakers to find a solution.
"Continued economic activity is dependent on well-functioning financial markets," he said in testimony to the Senate Banking Committee and later to a panel of the House Financial Services Committee.
U.S. insurance companies that write policies protecting property could face payouts of $30 billion to $50 billion for the attacks on the World Trade Center and the Pentagon, the biggest insured loss ever. Major reinsurance companies, which assume part of the risk covered by insurance firms, have said they won't renew terrorism coverage after Dec. 31, when many contracts expire.
Without terrorism coverage, it would be very difficult, if not impossible, to get bank loans for building construction, pipelines, bridges and other projects, putting a damper on the economy, O'Neill said.
But Sen. Paul Sarbanes (D-Md.), Banking Committee chairman, noted reports Wednesday that said the insurance industry has been raising premiums since the attacks and has attracted new investors.
The administration proposal would split between the government and the insurance industry the costs of property claims from future terrorist attacks, with the government share decreasing gradually and ending after 2004.
Sen. Phil Gramm of Texas told O'Neill the plan is good but raises concern because it could put taxpayers "on the hook for the first dollar." Lawmakers would feel more comfortable, Gramm added, if the government was "part of the backup process."
Legislation drafted by some lawmakers and supported by the insurance industry would create a government-backed insurance industry pool to cover future terrorism losses.Copyright © 2014, Los Angeles Times