SECTION: A SECTION; Pg. A09

LENGTH: 533 words

HEADLINE: States Support U.S. Terrorism Insurance Proposal

BYLINE: Jackie Spinner, Washington Post Staff Writer

BODY:




State insurance regulators are backing a Bush administration proposal that would make the federal government responsible for paying a large percentage of insurance losses from another terrorist attack if one occurred next year.

The Bush plan would gradually diminish the government's role over the next three years while still backing up the property and casualty insurance industry.

The administration plan is in response to a request by the insurance industry for help in covering future losses from any terrorist attack. The industry has proposed its own plan establishing a new company that would pool premiums collected by private insurers. The company would then use its resources to buy reinsurance from the federal government under a system that is similar to one in the United Kingdom. "The regulators have felt for a while that the solution needed to be very short and very strategic, really providing a backstop for the immediate future," said Kansas Insurance Commissioner Kathleen Sebelius, president of the National Association of Insurance Commissioners. "The administration proposal does that."

The state regulators adopted 19 governing principles on Monday that generally support the administration's proposal.

Sebelius said the regulators were concerned that the pool plan proposed by the industry would create "a whole new bureaucracy." Insurance policies and rates are currently state regulated.

Sebelius said the fact that the insurance industry is expected to be able to pay the $ 30 billion to $ 50 billion in estimated claims from the Sept. 11 attacks is proof that the current regulatory framework "is solid."

Under the administration's plan, the government would pay 80 percent of the first $ 20 billion in claims if any attacks occurred next year and 90 percent of the next $ 80 billion. The proposal would also limit the industry's liability from terrorist claims to $ 23 billion in 2003 and $ 36 billion in 2004, the final year of the program.

Insurers would pay all of the losses on the first $ 10 billion in 2003 and all of the losses on the first $ 20 billion in claims in 2004.

David B. Mathis, chairman and chief executive of the Kemper Insurance Cos., who has been lobbying for the industry pool plan, said the White House proposal does not provide enough stability for the industry because it requires insurance companies to retain too much of the risk of an attack.

"I do not want to criticize the fact that the administration has put forth a proposal, but the administration proposal . . . does not solve the problem," he said.

Under the industry's proposal, each insurer would keep 5 percent of the premiums collected and retain 5 percent of the risk. The pool would get the rest of the money and would cover the rest of the risk. The proposal would set up the pool system for six years.

Robert Losey, who chairs the Finance and Real Estate Department at the Kogod School of Business at American University, said the pool plan may provide a more realistic time frame for the industry to build up capital to cover terrorism risk.

"I just don't see how the industry will build up in three years," he said.



LOAD-DATE: October 18, 2001