ICYMI: How Much of a Terrorist Attack Should Insurance Companies Cover?
Aug 21 -
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August 21, 2014
Should the government help pay for Americans to rebuild after big terrorist attacks? If so, how much? Congress is in the process of answering these questions.
Since 2002, the federal government has provided a financial backstop for private terrorism insurance policies, promising public money to offset losses after large, expensive attacks. After $100 million in losses, the federal cost-sharing program is designed to kick in. Thankfully, the backstop hasn’t been necessary so far. But the policy is about to expire, and lawmakers must decide what to do with it before the end of the year.
The Senate passed a bill last month that would extend the current system for seven years with a few tweaks but no major changes. The vote in that chamber was 93 to 4. In the House, however, the debate is roiling, with Republicans deeply split about what to do. Some don’t want to see federal money put on the line to help developers in major terrorism targets — read, cities — obtain affordable insurance for big building projects, which has been a primary effect of the policy to date. Others — particularly those who represent districts that contain possible terrorist targets — would take the Senate’s status quo approach. The man at the center of this fight, Financial Services Committee Chairman Jeb Hensarling (R-Tex.), has proposed a bill that would keep the system in place for five years but, among other things, raise the point at which the federal government would step in to $500 million in losses.
It certainly makes sense for the government to provide some guarantee of help following a catastrophic attack. Congress would no doubt approve assistance after a big terrorist strike, anyway. It’s better to have a system with certain boundaries and rules in place before that happens. This makes even more sense when one considers that the government has a lot of control over — and responsibility for — protecting the homeland from catastrophic attacks. It has more influence in that realm of national tragedy than it has on the timing, location or severity of other disasters that elicit federal funds — hurricanes, tornadoes, floods or earthquakes, say.
But there is a legitimate debate to be had about what qualifies as a disaster big enough that the whole nation should bear some or most of the private rebuilding costs. It is neither unreasonable nor heartless for the House to wonder whether the Senate is promising too much assistance, when the private insurance market may be able to handle losses beyond its $100 million threshold on its own. Raising the bar might have negative consequences for the cost of constructing and operating large buildings in various places around the country, insurance on which would probably become more expensive or difficult to obtain. But it is only fair to ask those who use and benefit from those facilities to help pay something closer to their true cost.
The House should renew the policy, but it is right to explore more ambitious changes than those the Senate approved.