No Future Terrorist Coverage
interactive.wsj.com
October 10, 2001
Property Insurers to Stop Coverage Of Terrorist Attacks for Renewals
By CHRISTOPHER OSTER and TOM HAMBURGER
Staff Reporters of THE WALL STREET JOURNAL
As Congress works to gather support and hammer out details on a plan to make the federal government the insurer of last resort in the event of terrorist acts, insurers are moving rapidly to eliminate coverage related to terrorist attacks in property policies coming up for renewal.
"The trend is in favor of adding terrorist exclusions," said Robert Howe, managing director at insurance broker Marsh Inc., a unit of Marsh & McLennan Cos. Mr. Howe said the majority of insurers have indicated they aren't including terrorism coverage in property policies from now on, while others are evaluating the matter.
Brokers said that insurers also are broadening the language of such coverage exclusions in their new policies. "We're already starting to see suggested exclusionary wording for terrorism," said Suzanne Douglass, managing director for property at insurance broker Willis Group Holdings Ltd. In some cases, Ms. Douglass said, companies are asking for policies to exclude damage or loss caused by activities "motivated by social, financial, religious or political ends." She estimated that only about 10% of insurers are continuing to include terrorism coverage in policies.
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Ms. Douglass said it isn't clear whether events as the 1992 Los Angeles riots, the 1999 World Trade Organization protests in Seattle or actions such as abortion-clinic bombings would be excluded by such language.
Major insurers have committed to pay all claims related to the terrorist attacks of Sept. 11. But they argue that a government insurance pool is necessary because major reinsurance firms -- which assume some of the risk of policies sold by primary insurers -- have said they won't renew terrorism coverage after Dec. 31, when many reinsurance contracts come up for renewal. The insurance pool is important "to keep the economy moving," said Sen. Christopher Dodd (D., Conn.). Real-estate executives already have expressed concern that lending and other deals won't move forward unless major commercial properties can get terrorism insurance.
"It's a fluid situation and it varies by risk," said Weston Hicks, chief financial officer of Chubb Corp. of Warren, N.J., a property-casualty insurer. "If [reinsurers] come back and say they're excluding terrorism, we don't have any choice."
Like the insurance executives who hail from his home state, Sen. Dodd said "this is not a bailout. The federal government will not be writing a check." Rather, the government simply will serve as a "backstop" in case an industry-funded pool is unable to meet the demands of a future terrorism crisis. "The economic-stimulus package will be worth far less" without the establishment of a mechanism to provide terrorism insurance to commercial-insurance clients, he said. Sen. Dodd said he is awaiting word from the White House before signing off on a bill to establish a federally backed reinsurance pool for terrorism insurance. At the White House, spokeswoman Claire Buchan confirmed the administration hasn't yet made a decision on the pool proposal. "The administration is reviewing the issues to determine if a government role is appropriate and necessary," Ms. Buchan said. The discussions involve several agencies but are led by Treasury and the White House economic team, she said.
Separately, as the strikes on Afghanistan increase worries of additional attacks in the U.S., insurers are beginning to address whether they might invoke the "act of war" exclusions that typically exist in policies in regard to any new attacks. Insurers have been almost unanimous in saying they don't intend to invoke "act of war" exclusions in regard to Sept. 11 claims; the issue is whether any new attacks in the U.S. would be considered part of a war.
Maurice R. Greenberg, chairman of financial-services company American International Group Inc., said, "I think the one issue that nobody wants to talk about is if you have an increase of frequency and severity of attacks, at what point is that no longer a terrorist attack and becomes a war," Mr. Greenberg said.
John Morrison, Montana insurance commissioner and chairman of a working group studying attack-related legal issues at the National Association of Insurance Commissioners, said he assumed any further attacks by the al Qaeda network would be considered terrorist acts, but noted that any acts of aggression attributed to, for instance, Afghanistan or Iraq might be considered acts of war.
Sen. Dodd has met with the ranking Republican on the Senate Banking Committee, Phil Gramm of Texas. "We are of like mind on the broad principles," he says. But there is vigorous debate on Capitol Hill and elsewhere over several thorny issues that Sen. Dodd says "make this difficult legislation to write." Some administration officials have objected to the idea of a federal charter for the pool, fearing it could become a new regulatory burden. Sen. Dodd says he and his staff have been exploring chartering the new entity on the state level. |
