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Study cites U.S. terrorism insurance gaps

Associated Press
Published June 21, 2005

LOS ANGELES - Significant gaps in the nation's terrorism insurance program could slow efforts to revive the economy after future attacks, according to a study released Monday.

Many insurance policies protect against foreign terrorists, but don't cover losses caused by homegrown terror groups or even attacks involving chemical, biological, nuclear or radiological weapons, which are among America's top threats, a report by Rand Corp. finds.

Though scores of companies got coverage after a 2002 federal law freed up billions of dollars to help insurers pay claims, many businesses haven't bothered taking out policies.

Terrorist coverage equals only half the amount of commercial assets protected by other insurance policies, said Bob Reville, co-author of the study by the Santa Monica think tank.

Without insurance, a terrorist strike could heavily damage the economy, because businesses would have trouble rebuilding and hiring again.

"Who would be paying out for compensation? Who would be paying for losses and rebuilding? There would be a general industry slump that would feed into a downward spiral in the economy," said Peter Chalk, a Rand political analyst and co-author of the report. "We think it would be catastrophic."

The Sept. 11 attacks hit insurance companies hard, costing them at least $32-billion in claims and prompting many to exclude terrorism from coverage.

Congress responded in 2002 by passing the Terrorism Risk Insurance Act to reimburse the insurance companies up to $100-billion should terrorists strike, a measure criticized by many as a favor to insurance corporations.

The measure, however, led companies to offer terrorism premiums for policies such as commercial property, liability and workers' compensation.

Under the bill, the government wouldn't step in on any claims less than $5-million. Insurance companies would pay a deductible ranging from 7 percent in 2003 to 15 percent in 2005.

The federal government would later cover 90 percent of everything above the deductible with insurance companies paying the other 10 percent.

The Rand study, funded partly by insurance companies and trade groups representing commercial insurance buyers, argues against letting the legislation expire in 2005 as scheduled, which could lead to rises in terror insurance rates and fewer businesses' getting coverage.

The report also says the federal government should have terrorism insurance cover domestic terrorist threats and assaults by terrorists using chemical, nuclear and other unconventional weapons.

To boost the numbers of insured businesses, researchers suggest dropping deductibles that insurers are obligated to pay if there's a terrorist attack as a way to lower prices.

[Last modified June 21, 2005, 02:30:30]

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