Compelling Reasons for Terrorism Insurance legislation.(LETTERS)

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In "Looking for insurance with Uncle Sam" (Commentary, Tuesday), Doug Bandow took issue with the terrorism insurance legislation that has been approved by Congress and is in conference committee.

Let me offer a perspective further from the ivory tower and closer to the ground. For several reasons, we believe this legislation would be a true example of public-private-sector cooperation and good public policy.

First, the crisis for insurers is real. Regulatory filings reveal that in recent weeks, insurers and reinsurers have increased, not decreased, their loss estimates and corresponding reserves to pay claims associated with the terror attack of September 11. Reinsurers, who are less regulated, have eliminated terrorism coverage from their policies with primary insurers. If another big attack were to occur, primary insurers would not have the resources to cover the risks they already have on their books.

Second, in a clear recognition of the crisis, the British government just expanded its own terrorism reinsurance program to backstop insurers for nuclear, biological and other threats as well as those associated with fire and explosions. Our British allies know the threat of terrorism is real, and they are preparing to protect the stability of their insurance markets. So should we.

Third, business groups are aware of the risks of inadequate public-private partnerships. The Mortgage Bankers Association this month released a survey showing that a lack of "comprehensive and affordable" terrorism insurance already has cost our economy about $3.7 billion in deals this year.

The private sector knows that competition is important and that it is best served by having many sellers in the marketplace. The final terrorism reinsurance bill will no doubt include substantial retention levels for any insurer participating in the program, which will minimize the cost to taxpayers. The individual company retention levels, which Mr. Bandow so dislikes, are necessary to help keep small and medium- size insurers in the marketplace, allowing for more competition and consumer choice.

Terrorism insurance is not a government subsidy, for the risks of terrorism and war are not insurable as such. Even the current proposals require retention levels for insurers that force them to assume more exposure to loss than they would voluntarily. In short, the vast majority of insurers would not voluntarily assume this risk at this time, absent government requirements to include this coverage.

Insurers are regulated as much as or more than any other sector of the economy. …