NCPA - National Center for Policy Analysis

More than Meets the Eye in Federal Terrorism-Insurance Guarantees

October 31, 2001

Some analysts are contending that federal guarantees to help pay claims for future terrorism damage are actually aimed at benefiting U.S. targets that are national landmarks -- such as the Empire State Building, for example. And the insurance industry, itself, would be in a good position under the guarantees to make a hefty chunk of change.

Consider these arguments:

  • Beginning next year, Washington would pay 90 percent of any claims for terrorism damage -- after a $20 billion deductible.
  • By sharing its exposure with a chain of reinsurers -- with government picking up 80 percent at each stage -- the industry could be in a position to collect premiums while bearing no risk at all.
  • Big money is already flowing into Bermuda, home of the global reinsurance industry, as firms gear up to meet rising demand and premiums for property and casualty insurance.
  • Although insurers have threatened to drop terrorism coverage on policies which come up for renewal at year end, insurance stocks have rallied strongly and billions in new capital are flowing in on the prospect of surging demand and higher prices for terrorism coverage once the federal government becomes involved.

The government guarantees will have the effect of subsidizing the premiums of landmark buildings deemed to be potential terrorist targets -- with the burden shifted to taxpayers and the owners of more modest business real estate.

Source: Holman W. Jenkins Jr., "Bull's-Eye Insurance," Wall Street Journal, October 31, 2001.

For WSJ text (requires interactive subscription)


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