SECTION: MONEY; Pg. 3B

LENGTH: 352 words

HEADLINE: Insurers offer plan for terror coverage

BYLINE: Greg Farrell

BODY:
The insurance industry has cobbled together a proposal to create a British-style reinsurance pool to cover any future damages caused by terrorist attacks.


The proposal, being worked into legislative form by the office of Sen. Christopher Dodd, D-Conn., calls for the federal government to pay for terrorism damage for the 2002 calendar year. After that, the new industry fund -- dubbed the Homeland Security Mutual Reinsurance Co. -- will have built up enough money to pay for most terrorism damage on its own.
Insurance executives stress that they're not looking for a bailout, that they fully intend to pay for all damages generated by the Sept. 11 attacks on the World Trade Center. Right now, those damages could total anywhere from $ 40 billion to $ 90 billion, according to the American Insurance Association.


But the problem for commercial property insurers most affected by the attacks -- American International Group, Chubb and others -- is that the reinsurance companies that pay their terrorism damage claims will no longer offer the coverage because it's too unpredictable to price.


Most commercial property policies expire on Dec. 31, so the industry needs to get a law on the books this month, before Congress breaks for recess. Insurance companies fear that if they can't get the government to support a pool, they won't be able to offer terrorism coverage to all the businesses they serve. "Insurance is the grease that keeps the wheels of commerce running," says Julie Rochman of the American Insurance Association. "The economy will be negatively affected if there's no insurance to cover this."


The fund is modeled on Pool Re, a pool of funds established by insurance companies in Great Britain in response to bombings by the Irish Republican Army in the early 1990s. "Pool Re is a successful program that served a critical need," says consultant Stephen Lowe of Tillinghast-Towers Perrin.


"There's going to be a need for a reinsurer of last resort," says Maurice Greenberg, chairman of American International Group. " We're working on this very hard."


LOAD-DATE: October 11, 2001