Baker, Oxley introduce
terrorism insurance legislation
Measures include repayment of taxpayer dollars, tax
deferral on reserves built up by private sector for future terrorist
events
Thursday, November 1, 2001
WASHINGTON -- Joined by House Financial
Services committee chairman Michael Oxley, R-Oh., and a bipartisan group
of cosponsors, U.S. Rep. Richard Baker, R-La, chairman of the
subcommittee on Capital Markets, Insurance, and Government-Sponsored
Enterprises introduced legislation today aimed at stabilizing the
economy by providing short-term federal assistance to improve the
availability and affordability of terrorism insurance in the wake of the
September 11th attacks.
Key features of the "Terrorism Risk
Protection Act" also focus on the long-term goals of private-sector
strength and independence. In particular, the bill would provide for the
repayment over time of any federal dollars used in the short-term to
keep the insurance industry solvent should another major terrorist event
occur, and by deferring taxation on reserves insurance companies set
aside exclusively for protection against future terrorist
attacks.
"We don’t want to subsidize commercial
insurance coverage. However, the federal government can create a
temporary industry risk-sharing loan program to assure the continued
availability of commercial terrorism coverage. The bottom line, here, is
an attempt to limit immediate market disruption, encourage economic
stabilization, protect the interests of taxpayers, and facilitate a
transition to a viable market for private terrorism insurance coverage,"
Baker said.
"I’d also emphasize that while this
proposal creates significant increased protection for individual
insurance companies and policyholders, its ultimate aims are a stable
economy and a private market that, at the end of the day, is made more
independent and stronger than it was when we began," Baker
added.
While property-and-casualty insurers were
able to cover obligations for the estimated $40 billion damages related
to September 11, the availability and affordability of terrorism
insurance for businesses will become increasingly less likely. The
primary cause for the potential terrorism coverage crunch is the
announcement of reinsurance companies, which back up such terrorism
insurance policies, that they will not renew coverage by December
31st, when some 70 percent of those policies
expire.
Without the liquidity and protection from
re-insurers, insurance companies face constraints against covering
businesses against acts of terrorism. According to one report, "With no
coverage, lenders won’t lend, builders won’t build, and business will
grind to a halt."
While many in Congress and the
Administration believe the federal government must take some action
quickly to avert such a systemic catastrophe to the economy, several
proposals floated so far differ on to the scope and range of federal
intervention.
"We introduce this bill as a starting
point. And we look forward to working with the relevant Senate
committees, the Treasury, and the administration to resolve any
remaining differences in approach," said Baker. "And I’m fully confident
in our doing so in a timely manner."
Key elements of the "Terrorism Risk
Protection Act" include:
- Requires all federal taxpayer
costs/assistance to be paid back.
- Includes limited liability reforms to
protect taxpayer funds.
- Models risk-sharing plan on existing
state insurance programs.
- Allows insurers to keep long-term
terrorism loss reserves without tax penalties.
- Assesses first $20 billion in losses
back to commercial insurers over time.
- Sets trigger level at $100 million, with
lower threshold for smaller insurance companies.
- Provides 90% federal share with 10%
individual company retention.
- Bases repayment timing flexibility on
economic conditions.
- Establishes uniform definition of
terrorism.
- Authorizes one-year program with
optional extension for up to two additional years.
- Recoups subsequent losses through
commercial policyholder surcharges.
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