Only the most dedicated critics could find something to carp about in the insurance industry’s response to the terrorist attacks on Sept. 11. In the face of staggering claims, both the property- casualty and life insurance businesses have reacted admirably and with alacrity.

Projected tabs for the disaster run to about $50 billion for the p-c industry and around $5 billion for the life segment. This is not mere pocket change, by anyone’s reckoning.

It doesn’t take too much imagination to see that a few more situations that created equivalent financial havoc would cause a grave threat to the stability of the industry.

While it is true that insurance is taken out as a guarantee against the unforeseen, it is also true that some unforeseen situations are more unforeseen than others (with apologies to G. Orwell).

In their wildest nightmares, very few in this country could have imagined the devastation of Sept. 11 and that what started as a sunny late summer day with the Twin Towers standing proudly would only a couple of hours later find them collapsed, with much of lower Manhattan looking like a war zone.

The property-casualty industry has been engaged in negotiations with the government to have the United States become involved as the insurer of last resort in the event more attacks occur.

First there was talk of a reinsurance pool. But this proposal proved to be so cumbersome that it caved in under its own weight.

Now the Bush administration has come forward with a plan that would cap the p-c industry’s financial losses over the next three years in the eventuality of further terrrorist attacks.

Life insurance companies will take a much smaller blow than their p-c brethren, and in any case, the life business is well-equipped financially to handle this current situation.

But wisely, the American Council of Life Insurers wants to gauge the effects of any future incident. To that end, the ACLI intends to ask Congress to commission a study on whether there is a need to establish a federal backup for life insurance losses caused by terrorism and on the feasibility of a federal program.

ACLI stresses that the life industry is not asking for government assistance.

Rather, the Council wants a commission to look at worst-case scenarios and when, if ever, it would be appropriate for the life insurance industry to seek assistance from the government.

Specifically, the ACLI plan contemplates a nine-member commission, comprised as follows: two from the Treasury Department, one from the Commerce Department, one from the Office of Homeland Security, one from the National Association of Insurance Commissioners, two from the primary insurance industry and two from the reinsurance industry.

With this makeup–five commission members from government and four from private industry–the life insurance business would hardly be in a position to push through any conclusions that would look like the basis for a sweetheart deal.

While some criticism has already been aired that the industry should just do its own evaluation instead of talking with the government, we disagree. ACLI’s proposal to involve the government in any conclusions reached by the commission should go a long way to deflect any potential charges that the life industry is being self-serving.

While this proposal may not rank very high on the governement’s list of things that have to be taken care of immediately, we commend ACLI for its prudence in putting the idea forward and encourage the Council to keep pushing to implement it.


Reproduced from National Underwriter Life & Health/Financial Services Edition, October 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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