Terror insurance law is about to lapse; Congress should let it
After the Sept. 11, 2001, terror attacks, Congress put taxpayers on the hook for almost $100 billion in insurance claims in the event of another major terror attack.
The fear then was that companies wouldn’t dare construct skyscrapers, hotels or other potential terror targets in major cities without government-backed terrorism insurance to help absorb potential catastrophic losses. Officials worried that “the lack of terror coverage could lead to defaults on existing loans and a downturn in future lending, causing economic ripple effects as buildings are not built and construction workers remain idle,” a 2012 Congressional Research Service analysis noted.
Today, though, the robust and growing skylines in Chicago, New York and elsewhere would argue otherwise.
Under this obsolete law, insurers must hit $100 million (with an “m”) in losses in a year after a terror attack, and the government picks up most of the rest, up to $100 billion (with a “b”). The law is scheduled to lapse next year. Congress should let it.
We’ve always been skeptical about the need for taxpayers to be the insurers of last resort here. Why not let the insurance industry operate as it does in preparing for other catastrophic events: Create and price insurance options for coverage, and offer it to people who need it without undue government interference or taxpayer liability.
But the insurance industry and some of its allies in Congress have seized on the Boston Marathon bombing to argue that terror insurance cannot be allowed to lapse. In recent days, Republican U.S. Rep. Michael Grimm of New York introduced a bill with his Democratic colleague from New York, Rep. Carolyn Maloney, to renew the law for five years.
The Marathon bombing is a “a wake-up call to members of Congress that terrorism is still alive,” Robert Rusbuldt, president of the Independent Insurance Agents and Brokers of America, told Politico.
No argument there. But the Boston attack, while devastating and horrific, is not an argument to renew this law. It’s still early, but we haven’t heard claims that insurers can’t handle the financial fallout without government help.
Let’s remember that before Sept. 11, terror coverage generally was included in property/casualty insurance at no extra cost because the likelihood of such attacks seemed remote. The Boston Marathon bombings — and dozens of thwarted terror plots since 9/11 — remind us that, sadly, terror insurance is still necessary. It’s a cost of doing business today for some industries. It needs to be factored into everyday business decisions about insurance coverage, without federal taxpayers hovering nearby.
Even with the government backstop in place, and even though availability and affordability of insurance has improved, many businesses still say no, thanks. One large insurance broker, Marsh, Inc., reported in 2011 that 65 percent of its customers paid for terror policies, according to that 2012 CRS report. That number rose swiftly after 2003 but has leveled off in recent years, the report said.
That’s the way a market works: Companies make decisions about insurance based on whether the perceived risk is worth the cost of coverage.
The upshot: If the law lapses, the insurance industry will still find many willing customers. It will also figure out how to price the ongoing risk of terror attacks without a government safety net.
We have confidence that insurers can do that. This market can be as resilient and resourceful as the people of Boston. Let’s give it a chance.