Senate Banking Committee Leaders Reach Agreement With Administration On Terrorism Risk Insurance Legislation
November 2, 2001
Senators Paul S. Sarbanes (D-Md), Phil Gramm (R-Tex), Chris Dodd (D-Conn), and Mike Enzi (R-Wyo) have reached agreement with the Administration on legislation to ensure the continued availability and affordability of terrorism risk insurance. The title of the legislation is the "Terrorism Risk Insurance Act of 2001."
"I am very pleased to announce this timely agreement," Senator Sarbanes said. "It represents a temporary, targeted, focused plan to allay uncertainties about the continuing availability of insurance at affordable prices. As we approach the end of the calendar year, when many policies are due to expire, it offers a responsible framework for proceeding with economic activities which are essential to the viability of our economy but which otherwise might not be possible."
Senator Gramm commented, "I am pleased that of the various proposals that have been discussed, we have agreement on the one plan that provides no money to the insurance industry. Under our plan, we enter into a partnership with the industry to share the risk against insurance attacks, but all of the funds in the program would go directly to assist Americans who might become victims of terrorism. With this program, business in America can go on, without interruption from the terrorist threats."
"This measure - in short - can help seal cracks in our economic foundation that might occur in the event of future terrorist attacks," said Senator Dodd. "It acts as a ?homeland security' defense for our economy, and is definitely one ?policy' our nation should be willing to underwrite. I commend the Administration, Chairman Sarbanes, and Senators Gramm and Enzi for their leadership, and for everyone recognizing that this isn't about a single interest, but about our national interest."
"This bill represents a consensus between four members of the Senate Banking Committee with much different backgrounds and constituencies - This is not a compromise," said Sen. Enzi. "This legislation gives protection to taxpayers by forcing industry to be accountable for the first payments of any insurance claims and the bill also provides the proper federal backstop to protect small businesses and our economy as a whole."
The Act is a direct response to the events of September 11th, which have raised urgent questions about the future availability and affordability of insurance for losses resulting from terrorist attacks. In the absence of such insurance, lenders could be reluctant to finance real estate purchases, construction, or business investments in plant and equipment. With the expiration of many existing insurance policies looming on January 1, 2002, significant economic disruption could occur at that time.
The Terrorism Risk Insurance Act of 2001 establishes the Terrorism Insured Loss Shared Compensation program within the Department of the Treasury. Under this program, the Federal government would share the risk of future terrorist attacks with the insurance industry for two years. The Secretary of the Treasury would have the authority to extend the program for one additional year. In order to participate in the program, an insurance company must offer terrorism coverage in all of its property/casualty policies.
State regulation of insurance companies would continue uninterrupted, except that the definition of a "terrorist act" would be established by the legislation. States would be required to allow rate changes to take effect immediately during the first year of the program.
Any claims for property damage, personal injury or death arising from a terrorist act that occurs while the program is in effect would be consolidated in a single Federal district court assigned by the Judicial Panel on Multidistrict Litigation, and punitive damages would not be available.
In each of the first year two years of the program, Federal cost-sharing would become available after total losses exceed $10 billion, and the Federal government would assume responsibility for 90% of losses between $10 billion and $100 billion. If losses exceed $100 billion, Congress would determine the appropriate mechanism for ensuring payment. If the program is extended for a third year, Federal cost-sharing would become available after total losses exceed $20 billion, with the Federal government again assuming 90% of the responsibility for losses up to $100 million. The program would cover only those property/casualty losses arising from act of terrorism, with the Treasury Secretary, in concurrence with the Secretary of State and the Attorney General, certifying whether an event is a terrorist act.
Source: House Financial Services Committee