NCPA - National Center for Policy Analysis

Should Government Reinsure the Insurance Industry?

October 30, 2001

In the wake of the events of Sept. 11, it is being argued that the federal government must come to the aid of the insurance industry because another terrorist attack could leave it in ruins -- and the risks and the premiums needed to protect it cannot now be quantified.

Such arguments have convinced many analysts who would normally shun government protections to admit that government action may be warranted.

  • Under a Senate plan, insurance companies would commit their capital to a pool and if losses in any year exceeded the pool, the government would step in and cover the rest -- an arrangement many observers fear would leave the federal government in the insurance business indefinitely.
  • The Bush administration wants the government to reinsure the market until the year 2005.
  • But the flaw here, as some analysts see it, is that the government would furnish first-dollar coverage -- which would leave taxpayers on the hook for every incident terrorists cook up.

Experts are hopeful that over time the risks and the economic realities involved in writing insurance against terrorism will be clarified. Then the federal government can be relieved of this unwelcome role.

Source: Editorial, "Ensuring Insurance," Wall Street Journal, October 24, 2001.

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