Bush prepares to sign terrorism backstop into law

The U.S. government backstop for terrorism insurance will soon be a reality following a Senate vote in favor of the legislation late Tuesday night. In an 86-11 vote the Senate endorsed a compromise bill laid out by a joint Congressional committee to create a government reinsurance backstop for commercial lines terrorism coverage.The bill now goes to President George W. Bush to be signed, a step he says he is happy to take. “I look forward to signing this important legislation into law,” comments Bush. He says the bill provides a backstop for terrorism coverage while still ensuring “meaningful [insurance] industry participation in any losses”. The legislation sets up an excess program with insurers paying a deductible in the first year equal to 7% of direct written premiums from the previous year. That deductible rises to 10% and then 15% in subsequent years of the program. The government will pay 90% of losses in excess of this deductible, with participation capped at US$100 billion. In the event of a loss of greater magnitude, Congress will have to decide how to handle claims. Insurers will levy a 3% surcharge from commercial buyers to subsidize the program.Insurers withdrew the coverage following the September 11 terrorist attacks when the reinsurance market indicated it would not renew coverage for terrorism-related losses. Since that time, real estate development and other industries have complained of lack of available, affordable coverage for these risks acting as an impediment to economic growth.Other pieces of the legislation include the consolidation of terrorism-related lawsuits in a single Federal court. Bush notes, “While I supported even stronger liability measures to strengthen our economy and believe that further reforms need to be pursued, this bill significantly improves the legal system to prevent abusive lawsuits.”The program means that all commercial insurers must now provide terrorism coverage, and risk managers are urging the industry to step up to the plate. “RIMS (the Risk and Insurance Management Society) urges the insurance industry to act quickly on the legislation in relation to price, form and capacity,” says Chris Mandel, president of the society representing commercial insurance buyers. “This legislation will provide a necessary safeguard for our businesses and our economy, stabilize pricing and capacity of terrorism coverage, and allow reinsurers to re-enter the marketplace.”In Canada, insurers await reaction from the federal Finance Ministry, which has said it would only address the terrorism insurance issue after the U.S. had taken action.