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Insurers Prepare For Fight Over US Terrorism Coverage

By Joseph B. Treaster
THE NEW YORK TIMES

Insurance and business groups are gearing up for a battle to preserve a government program that would cover most of the losses from another major terrorist attack.

After Sept. 11, 2001, President Bush campaigned for the program to shield insurers from the bulk of the cost of an attack up to $100 billion. Without such backing, few insurers were willing to sell the coverage.

But last year, the administration concluded that the insurers were capable of providing terrorism coverage on their own. The insurers persuaded Congress to extend the federal backing until the end of 2007.

As soon as Friday, a presidential working group headed by Treasury Secretary Henry M. Paulson Jr. is expected to issue an assessment of the insurers’ ability to go it alone. The insurers fear that the group will argue, as a Treasury report did in June 2005, that the federal program interferes with market forces.

“The working assumption is that their findings are going to be similar to the Treasury conclusions of last year,” said Joel Wood, a lobbyist for the Council of Insurance Agents and Brokers.

Insurers say the frequency or severity of terrorism attacks is unpredictable, and that is why the industry needs the government to play a role.

“The potential is so large that no single industry can absorb that risk,” Edmund F. Kelly, the chief executive of the Liberty Mutual Holding Co., said Wednesday at a congressional hearing. Industry officials said they could not offer coverage without government backing. Government officials have said demand for insurance will create a market.

Before 2001, insurers provided terrorism coverage as a part of other policies. But afterward, most insurers would not sell it at any price. Banks began requiring terrorism coverage on loans for real estate and construction. President Bush said the lack of coverage was choking the economy.

In exchange for government backing, property casualty insurers were required to offer terrorism coverage.

If the government gets out of the insurance business, insurers will probably still be on the hook for losses from terrorist attacks, even without terrorism insurance.

The reason is that many companies sell workers compensation insurance. State regulators require those policies to cover injuries or deaths to employees, regardless of the cause, including terrorism.

That means insurers could be stuck paying billions of dollars for worker compensation claims. Also, many regulators require insurers to pay losses from fires after an event that they would otherwise refuse to cover, like an earthquake — or a terrorist attack.

Insurers and their allies in business stepped up their lobbying this week, pointing out that countries like England, Spain, France and Germany have government-backed programs for terrorism insurance.

Sen. Richard C. Shelby, R-Ala., who is the chairman of the Senate Banking Committee, said this week that he would not rule out ending the program. He said in a statement that he thought the program had “impeded the development of broader, innovative solutions.”

Unless Congress extends the program, it will die at the end of 2007.