Governors Want Terror Insurance Backstop Extended

Nov. 10--Twenty-eight governors, including Connecticut Gov. M. Jodi Rell, have signed a letter to congressional leaders urging them to extend a federal backstop for terrorism insurance that's set to expire at the end of December or get a new one in place.

The letter sent this week expresses "strong belief that our nation's economy depends on the availability and affordability of terrorism insurance." After the terrorist attacks of Sept. 11, 2001, insurers said they needed protection from future catastrophic terrorism claims, so the backstop -- the Terrorism Risk Insurance Act -- was passed in late 2002.

Without protection for insurers, the governors said, the nation "will find itself at a competitive disadvantage" against countries that do have a program, such as the United Kingdom and Germany, when trying to attract international private investment.

The current program requires insurers to cover terrorism claims up to a certain point, based on the amount of their annual earned premiums in certain commercial lines.

For instance, in 2005 insurers would be responsible for claims equal to 15 percent of earned premiums, or about $30 billion. Above that point, the federal government would pay 90 percent of claim costs, up to $100 billion, and the industry would pay 10 percent.

However, the Senate is considering a two-year extension of the act that would significantly reduce the backstop for insurers. The U.S. Treasury Department in June said the subsidy is too costly for taxpayers, and that the program should be allowed to expire unless it's shrunk.

Insurers are hopeful that Congress will act before the current program expires to make sure something is in place by Jan. 1.

The issue is "on the short list of must-address things," said Julie Rochman, senior vice president of public affairs for the American Insurance Association, a trade group.

"The industry understands the program will be scaled back," but wants to make sure the revision "doesn't render the program meaningless," Rochman said.

The governors urged congressional leaders to consider a temporary extension "that ultimately leads to a viable long-term solution providing adequate protection and reduced taxpayer exposure." The letter went to Senate Majority Leader Bill Frist, Minority Leader Harry Reid, House Speaker J. Dennis Hastert and House Minority Leader Nancy Pelosi.

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