This document provides background information and summarizes the debate over Terrorsim Re-insurance. The links to the left will lead you to public documents that we have found.
For most people
their contact with insurance companies is limited to the public, retail side
of the industry. Car insurance or homeowners' insurance, for example, are
typically purchased from independent agents or from regional or nationally
known retail companies like State Farm. Behind these companies, however, are
reinsurance companies. Reinsurance is a means of off-loading risk. If, for
example, a modest sized retail insurance company sells a property insurance
policy to the owner of an office building, a fire that destroyed the building
could result in the bankruptcy of that particular insurance company. Thus,
behind the frontline of the insurance industry are large companies like GE
and Swiss Re that backstop retail companies by underwriting their policies.
The attack on
the World Trade Center towers on September 11, 2001, catalyzed the reinsurance
companies into action on Capitol Hill. The risk from terrorism is rather different
from the everyday sorts of risks that insurers face. Terrorism, as in the
case of New York's twin towers, can cause a catastrophic level of destruction.
The attacks on the World Trade Center cost insurance companies $70 billion.
In light of the scope of these losses, the reinsurance industry felt that
the risks from terrorism were so great that they would have to rethink insuring
buildings and complexes that might be the target of such an attack.
The reinsurance
companies began working with sympathetic members of Congress to try to enact
legislation that would provide emergency support for the insurance companies,
the way government does with flood or hurricane disasters. The companies worked
with CALA (the Coalition Against Lawsuit Abuse), a coalition comprised of
large business associations. The terrorism reinsurance issue quickly became
embroiled in another: tort reform. For many years business groups have tried
to get a law passed reducing their exposure to certain kinds of consumer litigation.
At the heart of this approach is the right of defendants to move trials from
state courts to federal courts, as well as limitations on class action lawsuits.
Federal courts are seen as more sympathetic to business this kind of litigation,
and class action suits have the potential for very large judgments.
Tort reform sharply
divides the parties. Republicans strongly favor such legislation as it benefits
their business supporters, while Democrats work against it because trial lawyers,
a solidly Democratic constituency, oppose laws making it more difficult to
sue. The American Trial Lawyers of America (ALTA) fought tooth and nail against
the legislation. The House of Representatives backed the insurance industry
with passage of a bill shortly after 911. The Senate was slower to act but
it enacted legislation as well. The new law contained a relatively narrow
tort reform by giving federal courts original jurisdiction for class action
suits arising out of acts of terrorism.