White House seeks to help cover insurance claims

The Bush administration on Monday proposed to aid the beleaguered insurance industry and have the federal government pay the bulk of its claims for terrorist attacks over the next three years.

In the aftermath of the Sept. 11 attacks on the World Trade Center, the industry said it no longer would be able to offer coverage against terrorist acts in new property and casualty policies, leaving owners of buildings and other projects with large financial exposures.

Under the Bush plan, the government and the private sector would share in the cost of claims for terrorism. The industry had proposed a British-style program under which the government would be the insurer of last resort, but said it would accept any reasonable solution.

The administration’s proposal added to the list of public financial costs resulting from the attacks. The industry has said it would be able to handle claims for the World Trade Center collapse, estimated at $30 billion to $50 billion, but would not take on the risk of future claims.

Sentiment in Congress is mixed on whether to assist the insurance industry despite recent approval of a $15 billion bailout plan for airline companies, but a senior administration official said such assistance is needed.

The administration said Congress should approve legislation before it adjourns this year. A bill based on the industry proposal for a British-style pool also has been introduced.

“Without coverage against terrorist acts, banks will not lend” for new construction programs, the official said. “It will be difficult to sell major projects such as new pipelines, new power plants, skyscrapers.”

Julie Rochman, senior vice president of the American Insurance Association, said that without terrorism insurance, lenders may no longer be willing to hold mortgages for owners of commercial and residential real estate.

In the past, she said, the industry provided terrorism coverage at essentially no additional cost in premiums. Now it has deemed the risk to be too high to write policies without government assistance.

Under the Bush plan, the government in 2002 would pay 80 percent of the first $20 billion in insured losses and 90 percent of losses greater than $20billion.

In 2003, the industry would pay the first $10 billion of claims. Of losses from $10 billion to $20 billion, the government and industry would pay a 50-50 share, and of those greater than $20 billion, the government would put up 90 percent.

In 2004, the industry would absorb the first $20 billion of losses. The government and industry would share equally in paying for losses from $20 billion to $40 billion. And of those more than $40 billion, the government would pay 90 percent.

The money would be paid from the general fund of the Treasury with a $100 billion limit in any one year.

In stopping short of making the U.S. government the insurer of last resort, the White House said it had rejected the British-style plan, under which the industry would contribute to a large pool to pay losses from terrorism. If the money were insufficient to pay the claims from attacks, the government would make up the difference.

White House officials said that proposal was too complex.

Industry spokeswoman Rochman said “it is very encouraging that the White House has a proposal. We are anxious to see more details. ... We are open to any idea.”