Bush Plan Bolsters Insurance Firms' Terrorism Coverage

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Byline: Carter Dougherty

The Bush administration has hammered out a plan to have the federal government help insurance companies cover possible terrorist attacks.

Companies say they will be able to handle the $40 billion in claims stemming from the Sept. 11 attacks in New York and Washington but they cannot continue to provide insurance against future acts of terrorism without federal assistance.

The arrangement, which would require congressional approval, attempts to balance the need to help the insurance industry with the Bush administration's desire to avoid creating a new federal agency to provide insurance.

"The whole point is to gradually recede the government back out of the private insurance market, with the hope and expectation being that after three years, the private market mechanisms would be re-established," said a senior administration official, who asked not to be named.

Under the proposal, the federal government would share the cost of future terrorist attacks with insurance companies while reducing its role over the three-year life of the plan. The cost of the plan to the federal Treasury would depend on the level of damage inflicted by any attacks.

The announcement followed a weekend of negotiations between the White House and major insurance firms.

"We have heard our leaders say that new terror attacks are likely, so this plan is urgently needed," said Robert Hartwig, chief economist with the New York-based Insurance Information Institute, an industry group.

In the weeks after the attacks, reinsurance companies, the businesses that help guarantee that primary insurers can meet their obligations, have made clear they will not cover claims resulting from future terrorist attacks. Since Sept. 11, they say, it has been impossible to reliably calculate the risk of terrorism, an essential component of any insurance policy.

As a result, primary insurers began warning last month that they will halt terrorism coverage by the end of the year. …