SECTION: PREPARED TESTIMONY

LENGTH: 686 words

HEADLINE: PREPARED STATEMENT OF WALTER K. KNORR CHIEF FINANCIAL OFFICER, CITY OF CHICAGO
 
BEFORE THE SENATE COMMITTEE ON BANKING, HOUSING AND URBAN AFFAIRS
 
SUBJECT - THE AVAILABILITY OF TERRORISM INSURANCE COVERAGE

BODY:
Thank you, Mr. Chairman for inviting me to testify today.

My name is Walter Knorr and I am the Chief Financial Officer of the City of Chicago.

I appreciate the opportunity to present to the Committee a matter of great concern to the City of Chicago and, I'm sure, to other cities throughout America.

The cost of war-and-terrorism liability insurance as a result of the tragic acts of September 11th has escalated to incredible levels. The insurance industry is uncertain about the risk of terrorism, and therefore unable to assess and price that risk. In Chicago, our insurance carrier recently canceled our war-and- terrorism liability insurance coverage for Chicago O'Hare International Airport and Chicago Midway Airport.

Prior to September 11th, we paid an annual premium of $125,000 for $750 million of war-and-terrorism liability coverage.

If we want to renew our insurance, it will cost us $6.95 million for $150 million of war-and-terrorism liability coverage.

I'll repeat those figures for you. Our premium has risen from $125,000 to $6,950,000. Our coverage has dropped by $600 million.

That is a premium increase of over 5000 percent for substantially less coverage.

Expressed another way, the cost of $1,000 of coverage has risen from 16 cents to $46.33 -- an increase of 28,956 percent.

This extraordinary cost increase would be passed along primarily to our tenants at O'Hare and Midway, namely the airlines operating out of those two airports.

The financial problems of those airlines have been well publicized. A cost increase of this magnitude would negate the City's efforts to cut the costs of airport operations to benefit the airlines and keep them viable.

It also would undo the efforts of this Congress to assist the airlines financially during these uncertain times.

Chicago is not alone in this. We are aware of a number of other major airports across the country that have received equally exorbitant quotes for war-and-terrorism liability coverage.

In addition, the Chicago airports have been warned that their premiums for property and liability insurance may double, triple or even quadruple - and deductibles will increase significantly.

The problem extends beyond airports. The City of Chicago insures a toll bridge that connects Interstate 94 to the Indiana Tollway. Our most recent annual premium was $406,000 for $386 million of coverage.

In mid-September the City received a non-renewal notice for this bridge, with the ominous indication that the insurance carrier could not quote a new rate, but that the rate will increase by more than 30 percent.

One would expect insurance costs associated with terrorism to increase substantially for many other public and private structures: existing buildings, buildings under construction, public meeting areas like sports stadiums and convention centers, and other prominent infrastructure. The increased insurance costs would undoubtedly be passed along to the tenants and users of the these assets. If those costs were significant -- and I think they would be -- they would have an extremely negative economic impact.

Tenants would have to decide whether to pay those higher costs or leave the city and take jobs with them.

The insurance crisis hits major cities the hardest because cities Would appear to be the most likely targets for terrorist attacks.

While terrorists may pick out individual targets, the attacks are directed at the nation as a whole and the risk should be spread to the nation as a whole.

In these uncertain times, the federal government should act as an insurer for future terrorist attack, and catastrophic

There are two proposals before this committee, and the City of Chicago is not taking a position on the two proposals.

The City does believe it is imperative that the Federal government act on the insurance problem to provide certainty of insurance at reasonable rates, and hopefully mitigate the cost to government and business.

Thank you again for this opportunity. I will be available for any questions you might have.

END

LOAD-DATE: October 31, 2001