Risk Management

Bailout for Insurers?

The House clears a bill that would assure there is terrorism-risk insurance available for U.S. businesses.
Stephen TaubNovember 30, 2001

It’s taking the insurance industry a few more months than the airlines. But insurers are one step closer to receiving a package of government aid to help them recover from the events of 9/11.

On Thursday the House of Representatives cleared legislation that would assure that there is terrorism-risk insurance available for U.S. businesses. Insurers have claimed that they can pay the projected claims from the terrorist attacks, which is expected to amount to be at least $40 billion. They argue that they would not be able to sustain another round of claims of this magnitude, however.

The big fear, of course, is that if businesses can’t receive adequate insurance, they will have trouble borrowing money or attracting investors. Therefore, the legislation would provide government loans to help insurers pay property and casualty claims from any future attacks.

Under the bill’s provisions, the insurance industry would be required to pay claims from any terrorist act causing losses under $1 billion. For larger losses, though, the government would pick up 90 percent of all claims. Insurers would have to repay any government aid up to $20 billion themselves and would surcharge commercial policyholders to pay back any assistance above that level, according to published accounts.

Most Democrats opposed the bill because there are provisions that bar punitive damages awards, limit noneconomic damages, and cap attorneys’ fees. They argued this would unfairly restrict the legal rights of victims of terrorist acts.