The federal government will soon be in the terrorism insurance business. The U.S. Senate has passed legislation that allows the government to back private insurers, allowing them to offer coverage. The federal government will pay for 90 % of all losses over $10 billion during the first third of the 10-year program. Losses under $10 billion will require insurers to pay as much as 7% of the premiums they collect. By the third year, the government will absorb 90 % of costs above $15 billion.
Pres. George W. Bush is expected has to sign off on the bill.
Details are still hazy. For one thing, the cost of terrorism insurance is not spelled out in the legislation. Such coverage was free before Sept. 11, but immediately after the attacks most insurers either stopped offering it entirely or raised their premiums astronomically.
"Who knows how the pricing issue will pan out? There’s still a lot to be done," says Scott Adams, director of corporate insurance and risk management at New York-based Insignia/ESG.
He hopes that the news will "jump start the economy" by moving along deals previously held up by terrorism insurance issues. "The lack of terrorism insurance was a deal-breaker before," he says. "Now we’re hoping to see the end of that."