SECTION: BUSINESS; Pg. 01F

LENGTH: 737 words

HEADLINE: High Cost of Attacks;
GOVERNMENT ASKED TO HELP INSURERS

BYLINE: Phil Porter, Dispatch Business Reporter

BODY:
After losing a lot of money from claims tied to last month's attacks on the World Trade Center and Pentagon, the U.S. insurance industry says it no longer may be able to cover acts of terrorism.

The position is at the heart of a debate in Washington over an aid package for the industry.

Insurance companies say that unless the government steps in to provide protection against terrorist-related losses, the effects will ripple through the economy.

The industry says economic development will be slowed and major building projects will be unable to proceed. Many commercial policies come up for renewal at the end of the year, providing insurance companies a chance to change coverage of terrorist acts. The reinsurance industry -- or companies that insure other insurers -- plan to cut back on such coverage. "We're looking for the government to backstop us" in the event of another terrorist attack, said Bernard Hengesbaugh, chief executive of CNA Insurance. "We are willingly and aggressively paying existing claims, so this is not a bailout."

W.G. "Jerry" Jurgensen, chief executive of Columbus-based Nationwide, said the issue affects more than the industry.

"The unfortunate thing is that some people see that as a bailout, but, in fact, it's insureds that are going to need help come the first of the year," he said.

The industry is concerned that skyscrapers such as the Empire State Building, the Sears Tower or even Columbus' office towers may not be able to buy enough affordable coverage without government help, Jurgensen said.

But critics say the industry is asking too much.

"We're for a little assistance in this extraordinary situation but not for a bailout," said Travis Plunkett, legislative director of the Consumer Federation of America. "We think it can be done right but only if taxpayers are protected."

The American Insurance Association seeks the creation of a government-backed reinsurance company that would issue terrorism coverage similar to one in existence in Britain.

The government would pay 95 percent of the cost of claims resulting from a future terrorist attack, while insurers would pay the remainder. The government's obligation would not kick in unless terrorism losses exceed $10 billion.

Plunkett said one problem with the industry's proposal is that it would pay nothing for reinsurance for the first year of the program.

The legislation is expected to be introduced by Sen. Christopher Dodd, D-Conn. It would expire in six years.

Hengesbaugh, who leads the insurance association, can testify to the drain on capital that terrorism causes insurers.

CNA Insurance is the fifth-largest U.S. home, auto and commercial insurer. Its after-tax losses are expected to be $130 million to $230 million as a result of insuring the lives of 1,000 people who were victims of the attack on the World Trade Center. One of its clients was the bond firm Cantor Fitzgerald, which had offices in the north tower.

Hengesbaugh explained that under the proposal, insurance companies would sell premiums for the terrorist coverage that would go into reserve to pay claims.

But even the White House questions the approach. It has proposed an alternate.

"Setting up a reinsurance pool would provide a lot of complexity," one senior administration official said this week in a news briefing. "We have some concerns about having a pool that's a monopoly."

Under the White House proposal, the government would absorb 80 percent of the first $20 billion in insured losses resulting from terrorism, with insurers covering the rest.

Its proposal would expire in three years, and the government's responsibility would decline during that period. By 2004, the private sector would be responsible for the first $20 billion of insured losses from a terrorist act, with the government paying more if losses exceed that amount.

Hengesbaugh said the insurance industry is willing to negotiate. The industry is seeking action by early November when Congress recesses for the year.

Because some disapprove of a bailout, the White House understandably wants the insurance industry to participate in losses, Jurgensen said.

But the reality is that costs would be passed back to policyholders through higher premiums.

And with the terrorism threat so new in the United States, insurers will be at loss to know what to charge, Jurgensen said.

pporter@dispatch.com

LOAD-DATE: October 31, 2001