Who Should Insure against Terrorism? ; Terrorism Insurance Promotes Economic Stability. but Some Disagree on the Government's Role

Article excerpt

The threat sounded ominous: Dirty bombs would be detonated at Giants Stadium and six other stadiums across the country. It would be "America's Hiroshima," causing civil war, chaos, and global economies to "screech to a halt."

Fortunately the threat was just a hoax perpetrated by a 20-year- old grocery store clerk from Wisconsin.

But since 9/11 businesses such as Giants Stadium have had to insure themselves against possibilities once thought unimaginable. Right after the 2001 attacks, many couldn't. The cost of terrorism insurance skyrocketed, and some insurers simply refused coverage. That left businesses and the economy vulnerable to economic chaos in the event of another attack.

Congress eventually stepped in and guaranteed that losses over a certain amount would be covered if they were due to a "certified" terrorist attack and if insurance companies would make such coverage available.

But the fix - the Terrorism Risk Insurance Act (TRIA) - was temporary. And while the law has been extended once, it will expire at the end of 2007.

Now an ideologically charged debate has sparked about whether the federal government should have a permanent role in the terrorism insurance business. The debate comes down to who should provide such insurance: the private marketplace or a public-private partnership?

The debate has created some unusual political bedfellows: Big- city liberals are lining up with the corporate insurance industry against Republican conservatives and consumer advocates.

"The industry and the left want a long-term program with some subsidies, but the White House and some Republicans are afraid that it would create another bureaucracy. They want the market to handle it," says Robert Hunter, director of insurance for the Consumer Federation of America.

Major attack could bankrupt insurers

There are a few things all agree on. The first is that the damage caused by a terrorist attack with a weapon of mass destruction - nuclear, biological, chemical, or radiological (known together as NBCR in insurance jargon) - would be so great it would bankrupt the insurance industry, and thus such risks are uninsurable.

For instance if New York City was hit by, say, a nuclear bomb, insured losses could be as high as $778 billion, according to an analysis by the American Academy of Actuaries in Washington, D.C. - and that's not even considered a worst-case scenario.

The other point of agreement is that terrorism insurance for other types of attacks is needed to ensure economic stability and growth.

The White House and the Consumer Federation's Mr. Hunter believe that in the years since 9/11, the market has proved it is capable of covering most losses due to a conventional terrorism attack.

"The insurance industry is just rolling in money, and the taxpayers aren't. We have huge deficits," says Hunter. "Why should we be subsidizing a rich industry that's making record profits right now?"

He contends that since "the big stuff" like nuclear, biological, and chemical damages aren't covered anyway, there's no reason for taxpayers to continue picking up part of the tab for conventional attacks like airplanes or truck bombs crashing into buildings. …