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Background Information
- Events of September 11 Caused Major Insurance Industry
Losses: Estimates range from $36 billion to $54 billion. As a
result, the reinsurance industry (not legally obligated to cover
terrorism) has generally stopped covering terrorist acts.
Forty-five states (covering about two-thirds of commercial
insurance) have allowed primary insurers to also exclude acts of
terrorism from property and casualty coverage. Even with the state
exclusions, premiums for property and casualty insurance increased
approximately 30 to 50 percent in the wake of the attacks.
- New Job-Creating Projects are Being Delayed or
Cancelled: Banks and other lenders will not lend to
construction projects that do not have adequate insurance
coverage. This has slowed the pace of new construction projects.
For example, one prominent developer has been unable to obtain
financing for a $2 billion project due to lack of insurance; once
financing is obtained, the project will provide 16,000 jobs.
Overall, nonresidential construction has not picked up recently
like other areas of the economy. In February, nonresidential
building construction was down 3 percent compared with January of
2002 and down 19 percent compared with February of 2001. Delayed
or cancelled work on new construction projects costs American
jobs.
- Workers’ Compensation Insurance Becoming More Difficult to
Provide: State laws do not allow companies offering workers’
compensation insurance to exclude terrorism risk. As a result,
some insurers are not writing workers’ compensation policies for
large employers, a move which forces the employer to go to several
companies to cover all of its workers or to its state-sponsored
insurance pool. This situation has led to significantly increased
workers’ compensation premiums.
- Higher Premiums and Lending Costs Act As Job-Killers:
Existing properties either lack terrorism coverage or are paying
higher rates for more limited coverage. The problem is
particularly acute for symbols of America (e.g., the Mall of
America), structures for large gatherings (stadiums), critical
infrastructure (major bridges) and power plants. Some properties
without adequate insurance are technically in default of their
mortgages, and lenders may have to raise their fees to compensate
for added risks. These increased premiums and higher lending costs
are squeezing businesses across the country.
- Lack of Insurance Makes us More Vulnerable to Future
Terrorist Attacks: Without private insurance coverage, the
impact on the economy of another terrorist attack would be more
serious. Private insurance absorbed the losses from September 11
and made prompt payments, calming investors and giving businesses
the confidence needed to resume operations. If the event of
another attack, uninsured businesses and investors would either
need to absorb losses themselves, or wait for the Federal
Government to act. A Federal payment system, hastily conceived in
the aftermath, likely could not perform as well. Even if the
Federal Government provided financial assistance, the uncertainty
that would exist between the time of an event and any subsequent
federal action could lead to bankruptcies, layoffs and loan
defaults.
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