NCPA - National Center for Policy Analysis

Who Will Pick Up the Tab for Terror Insurance?

October 12, 2001

Should Kansas wheat farmers be forced to pay higher insurance premiums to cover the possibility of a terrorist attack on Wall Street? Or should neighbors of Walt Disney World pay two, three or even four times the premiums for homeowner's insurance that are paid by homeowners next to Yellowstone National Park?

Those are the questions that arise as insurance industry lobbyists push for the federal government to create an insurance company that would pool premiums to cover future terrorist attacks.

  • Under the industry's proposal, the government would help pay claims if funds pooled by the new Homeland Security Mutual Reinsurance Co. were not sufficient to cover losses -- and would essentially make the federal government the insurer of last resort.
  • Participation in the program would be voluntary, and each insurer participating would keep 5 percent of the premiums collected and shoulder 5 percent of the risk.
  • The pool -- which gets the rest of the premiums -- would cover the rest of the risk, until it ran low on money and the federal government stepped in.
  • Insurers contend that such a federal program is necessary because businesses and consumers will not be able to buy terrorism coverage from the private marketplace in the future.

The Sept. 11 attacks have been estimated to cost the insurance industry between $30 billion and $50 billion -- and while industry representatives indicate insurers will largely be able to handle the sum, they warn that they could not afford another terrorist disaster of that magnitude.

Sources: Jackie Spinner, "Insurers Seek Help With Terrorist Coverage," and Steven Pearlstein, "Congress to Face Question of Who Will Share in Risk," both in Washington Post, October 11, 2001.


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