SECTION: LOCAL, Pg.B10

LENGTH: 600 words

HEADLINE: ASSURING THE INSURERS

BODY:
Differences already are developing in Washington over what role the federal government should play in bolstering an industry healthy enough to weather the Sept. 11 terrorist attacks, but deeply worried about the next one.

The good news is that insurance companies expect to meet their obligations and pay off on claims arising from the attacks. But industry analysts say Sept. 11 will alter the way insurers do business -- and there are signs that the pool of terrorism insurance already has dried up. Claims are estimated at between $30 billion and $58 billion. According to a Tillinghast-Towers Perrin study, the largest single-event loss in the insurance industry's history. Primary insurance companies seek to spread out their risk by purchasing reinsurance policies from other firms. But since Sept. 11, one review study suggests, every reinsurance policy that has been issued has a terrorism exclusion clause. (In the interests of full disclosure, Berkshire Hathaway, the parent company of The Buffalo News, owns General Re, a major reinsurance firm. As always, Berkshire officials have no input into News editorial policy.)

Without insurance against a possibility that now looms as frighteningly real, business is not likely to invest in major new facilities or projects, or even to be able to borrow money to do so. The lack of terrorism insurance, expected to become much more widespread as policies come up for renewal on Jan. 1, could have a chilling effect on an already-beleaguered economy, and that rightly has triggered governmental concern. Britain faced similar problems after Irish Republican Army radicals planted bombs in London. Its solution was a government-backed terrorism insurance pool. If claims exceeded both insurance company resources and the deeper insurance industry pool, the government would step in to cover losses.

That model has been advocated by insurance industry groups here, but has generated little enthusiasm from Republican lawmakers who don't want to put taxpayers on the hook for claims against a still-healthy industry. President Bush has proposed his own stopgap plan, under which the government would bear most of the liability in 2002, with industry assuming a greater share in 2003 and 2004.

The American Insurance Association favors a British-type plan, with a property and casualty terrorism insurance pool run by the industry. The Alliance of American Insurers backs a similar concept, with a pool run directly by the Treasury Department and expanded to include life insurance. Both would more properly cast the government as a backup, and not a claims-payer from the start.

Administration officials say the pool concept is too complex to set up quickly and too difficult for the Treasury Department to oversee properly. Sen. Charles E. Schumer, D-N.Y., thinks Bush's three-year plan is too short to encourage the financing of major projects, but agrees that something inevitably must be done by the government to keep terrorism-loss insurance available and the economy on track.

Regardless of how this debate is resolved, it's clear that the government has to be involved. Without a federal safety net, it simply won't be possible to buy insurance against catastrophic losses due to terrorism.

There is comfort in knowing that insurance firms will live up to their obligations in a way that should help America rebuild -- but both the president and Congress must hammer out an approach that offers short-term guarantees and a long-term plan for dealing with risks that, unfortunately, are no longer so remote.

LOAD-DATE: November 8, 2001