SECTION: EDITORIAL; Pg. A34

LENGTH: 347 words

HEADLINE: Insuring Against Catastrophe

BODY:


It's hard to argue with multi-billionaire Warren Buffett on matters of money, but even he admitted to doing something "very dumb" when his company wrote "insurance coverage for a huge catastrophe loss" without charging a premium ["An FDIC for Insurers," op-ed, Nov. 19]. Now he urges Congress to ignore three other equally sound insurance principles as it considers plans for federal terror insurance.

Mr. Buffett worries that "the proposals now being considered will engender pricing based upon risk exposure," so he advocates its elimination. Even the FDIC he admires can charge a risk-based premium. Should the insurer who underwrites a terror policy at taxpayer risk charge the same price for the coverage whether or not the client has taken prudent steps to improve security or evacuation plans?

Should a new building that might be more vulnerable to terror attack be constructed instead of one that might account for possible attacks and qualify for lower insurance rates? Of course not.

His plan would also underwrite all insurance industry terror losses. But even the most naive insurance consumer is familiar with the need for an insurance deductible. Taxpayer payment for the first dollar of losses would undercut incentives for insurers to demand that their clients increase security or pay commensuratively higher premiums. At the least, a capped level of financial risk should remain in the private sector, which will price the insurance according to risks taken by the consumer.

Perhaps the most bizarre aspect of his proposal is that federal terror insurance should pay all insurance company claims. There must be a substantial co-payment by the insurance company in order to guard against fraud and inflated claims by clients. It is easy for insurance companies to keep customers happy if they have little financial incentive to monitor claims. We don't want them keeping their most profitable customers happy by spending other people's money -- ours.

DAVID KEATING

Senior Counselor

National Taxpayers Union

Alexandria



LOAD-DATE: November 28, 2001