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Terrorism Rocks The Insurance Industry, Consumer, And Government

By: Thomas M Kallman

Several federal legislators plan to propose a government sponsored insurance fund to cover terrorism related losses in The United States. The legislation could be introduced as early as this month. Published reports state that the pool would cap private insurance and reinsurance companies’ liabilities in the first years of the plan.

A spokeswoman for the American Insurance Association said Sen. Christopher Dodd, D-Conn., and Senator Charles Schumer, D-N.Y., are set to propose a privately-financed, privately-run insurance fund, making the government an insurer of last resort to help property and casualty insurers cover losses from terrorism.

The government plan would cover anything above and beyond what the insurance companies themselves could not pay for. The pool would cap private insurance and reinsurance companies’ liabilities at $20 billion of damages in the first year of the program, and the private sector’s exposure would rise to half of the claims between $20 billion and $40 billion by the third year. After that, the private market would be responsible for all claims arising out of acts of terrorism.

Since the September 11 attacks, reinsurers have not been offering new terrorism coverage. As of January 1, 2002 all existing terrorism coverage between reinsurers and most property and casualty insurers expire, and according to most published reports, reinsurers will not offer terrorism coverage anymore. About 70 percent of U.S. commercial policies with terrorism clauses expire on that date. Without that coverage being available in the private market, banks may hesitate to approve loans for a variety of companies from real estate and construction, to retail and manufacturing.

In addition, all airlines around the world, will be required to collect a War Liability passenger surcharge of US $1.25 per passenger, per flight. The International Air Transport Association is currently reviewing the method for all airlines to implement collection of the surcharge which applies to flights on and from October 1 2001. New liability insurance cover with respect to third parties for injury and property damage arising from war / terrorist activity may be subject to a maximum limit of $50 million for any one event; reduced from the previous limit of up to $2 billion. This reduction means that should an aircraft be involved in such a disaster, there would be substantial uninsurable risk.

There are many companies in the U.S. that are going to pay claims as a result of this tragedy in spite of the fact that they may be holding policies that have exclusions regarding terrorism, or acts of war. While the insurance industry will have the resources to cover losses caused by the Sept. 11 terrorism attacks, there is a looming crisis on future coverage.

Thomas Kallman is President of TMK Risk Management Inc dba Kallman Insurance Agency at PO Box 266736, Weston, Florida 33326. Phone 954-389-5897. Visit the website at Your questions are always welcome.

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