Copyright 2002 eMediaMillWorks, Inc.
(f/k/a Federal
Document Clearing House, Inc.)
Federal Document Clearing House
Congressional Testimony
February 27, 2002 Wednesday
SECTION: CAPITOL HILL HEARING TESTIMONY
LENGTH: 1084 words
COMMITTEE:
HOUSE FINANCIAL SERVICES
HEADLINE:
NEED FOR FEDERAL
TERRORISM INSURANCE ASSISTANCE
TESTIMONY-BY: LISA KRAMER, PRESIDENT & CEO
AFFILIATION: FOJP SERVICE CORPORATION
BODY: LISA KRAMER President & CEO FOJP Service
Corporation
Hearing Before the Subcommittee on Oversight and
Investigations
"How much are Americans at risk until Congress passes
terrorism insurance protection?"
Wednesday, February
27, 2002
Good afternoon Chairwoman Kelly, ranking member Gutierrez and
other members of the Subcommittee on Oversight and Investigations.
I am
the President of FOJP Service Corporation. FOJP is a non- profit membership
corporation, incorporated under the New York Not-For-Profit Corporation Law. We
serve as risk management advisors to United Jewish Appeal-Federation of Jewish
Philanthropies of New York and its beneficiaries, among which are six major
academic medical centers, many long- term-care facilities, and 110 social
service agencies, community centers, Ys and camps. FOJP's Board of Directors,
which is elected by UJA- Federation, is comprised of men and women with diverse
professional backgrounds who also serve on the Boards of institutions that are
represented by FOJP. These institutions are at the forefront of providing
cutting edge medical care; a broad array of mental health services; cultural,
educational and physical fitness programs; services for the elderly and for
immigrants; camping and daycare for the young and for the old; and employment
counseling and training for those seeking jobs. Services are provided on a
non-sectarian basis to a population that reflects the diversity that New York
State is known for, and often to people who have nowhere else to turn. Our
facilities provide housing for the elderly, counsel to victims of domestic
violence, rehabilitation to the deaf and to the deaf- blind, and health care to
millions of people year in and year out.
In its capacity as risk
management advisor to these institutions, FOJP works with leading insurance
brokers to procure lines of property and casualty insurance coverage that are
essential to protect the institutions from liabilities and losses. Professional
medical liability, commercial general liability, workers' compensation and
all-risk property insurance are among the lines of coverage procured through the
FOJP program.
In May of 2001, through two of the largest insurance
brokers in the world, FOJP began the process of marketing the renewal of the
all-risk property insurance that covers loss of or damage to the real property
of its client institutions--property valued in excess of $8.5 billion. The
renewal date was November 1, 2001.
In July of 2001, each of the brokers
was awarded seven of the world's largest and most respected property insurers to
which to market the FOJP property coverage. Sealed bids were due on September
17. The brokers were actively in the process of seeking renewal quotations when
the attacks of September 11 took place.
An already hardening
property/casualty insurance marketplace became a nightmare for insurance
consumers. And, in agreement with its brokers, FOJP stopped the competitive
bidding process and used one broker to scratch and claw the worldwide insurance
market for a renewal program. Prior to the November 1 renewal, institutions
insured through the FOJP program enjoyed property insurance limits of over $8
billion for the program. Following the November 1 renewal, and despite the
extraordinary efforts of one of the world's largest insurance brokers on the
worldwide insurance market, 16 international insurance companies in combination
provided a program with significantly less coverage at significantly increased
cost. Most alarming, however, was that terrorism exclusions were added to their
policies. Upstate hospitals, particularly in the Buffalo and Albany areas, have
seen their
insurance limits dramatically reduced, both their
deductibles and premiums dramatically increased, and all had
terrorism exclusions inserted in their policies.
The
combination of significantly reduced limits and terrorism exclusions experienced
by the FOJP program has become commonplace, posing a serious threat to the
ability of non-profit healthcare and social services institutions to continue to
provide the services that are so important to the poor, the aged, the sick, the
disabled and to those of us who are lucky enough to enjoy cultural and
educational services without the burden of sickness and disability. Consider
that each of FOJP's largest hospital clients have in excess of $500 million in
long- term debt, as well as more than $100 million in short-term loans for new
construction. In the event that one single terrorist act, even far below the
magnitude of September 11, seriously damages or destroys any significant
property in the United States, the effects of such a scenario could be far
reaching and devastating.
Lender agencies will realize that they are the
insurer of last resort. Institutions will be unable to rebuild because of
terrorism exclusions and there will be defaults to private mortgagees and
government lenders. Lenders may respond by requiring terrorism coverage before
lending any additional money to similar institutions. The institutions will then
face the choice of foregoing essential programs that are necessary to fulfill
their missions, or paying exorbitant terrorism premiums for insufficient
coverage limits. A leading writer of terrorism coverage recently quoted the FOJP
program a premium of $4,236,080 for $50 million in coverage.
Premiums of
this size are simply not affordable in the current fiscal environment. Leaving
aside the day-to-day financial stress non-profit institutions bear in providing
essential services, basic insurance costs--for property, liability, and
statutorily required coverages--are rising precipitously. There is no money in
any budget to pay the premiums that are being quoted for terrorism coverage, if
such coverage can be found at all.
And even if the money could be found,
the limits being offered are seriously inadequate.
As I noted, the FOJP
program was offered $50 million in coverage- -no more. If one of our insured
hospitals were to be seriously damaged or destroyed by a terrorist act, $50
million in coverage would make but a small dent in the hospital's financial
obligations and rebuilding costs.
The issue of
insurance coverage for property loss caused by acts of
terrorism is a serious one. Coverage is either unavailable or
coverage that is available is inadequate in limits and unaffordable in price. We
need Congress to act and to act quickly.
Thank you.
LOAD-DATE: March 1, 2002