Las Vegas Sun

March 28, 2024

Renewal sought for terrorism insurance

WASHINGTON -- Gaming and construction industry officials are anxiously eyeing the calendar as time runs out for Congress to renew a federal terrorism insurance plan that would protect them in the event of a catastrophic attack.

The three-year-old Terrorism Risk Insurance Act, which expires Dec. 31, guarantees that taxpayers will help companies pay their insurance bills after a financially crippling attack. Without its renewal, vital economic engines, including the gaming and real estate industries in Las Vegas, would face sky-high premiums -- or perhaps no insurance, officials said.

"Clearly, Las Vegas is an important economic hub," said Jay Hyde, spokesman for the Coalition to Insure Against Terrorism, a multi-industry coalition lobbying for the act's renewal. Its members include manufacturers, railroads, real estate groups and the National Football League.

"There is a lot of construction there, and we would hate to see that impacted in any way," he said.

Congress approved the terrorism insurance act in November 2002, after insurance companies, which paid out $32 billion in claims after the 9/11 attacks, began dropping terrorism coverage for commercial insurance policies.

Fearing another attack, some business sectors and construction projects slowed. More than $15.5 billion worth of real estate projects in 17 states, including Nevada, were stalled or canceled after Sept. 11 because of a lack of available insurance, a 2002 study by the Real Estate Roundtable reported.

Casinos and other companies faced exorbitant premiums.

"The concern was that they would be losing their insurance," said Wally Chalmers, American Gaming Association vice president for government affairs.

So under the 2002 legislation, Congress devised a plan: Federal money would be available to companies in a foreign-terrorist attack that caused at least $5 million in damage. In those cases, insurance companies would pay a deductible amounting to 15 percent of the total premiums they collected the previous year -- millions of dollars for large insurance companies. At that point, the government would pay 90 percent of damage to policyholders, and the insurance companies, 10 percent.

Insurance companies note that taxpayers are not liable except in the most catastrophic attacks because of some fine print in the law requiring that insurance companies pay back the government up to $15 billion through surcharges passed on to their policyholders.

Still, insurance industry officials like the plan and say it keeps the U.S. economy afloat in an age of terrorism. They argue that the program is a taxpayer backstop, not a bailout.

"There is no question that a terrorism insurance risk mechanism is essential for our economy to continue functioning," American Insurance Association spokeswoman Julie Rochman said.

Nevada insurers could not afford to offer terrorism insurance without the federal insurance plan, said Tom Kerestesi, president of Las Vegas insurance company Cragin & Pike, which insures downtown and Strip casinos, as well as construction and retail companies. And without that insurance, lenders would not loan money, and projects would not be built, he said.

"It's a very big deal, especially in Las Vegas, which is a target area, more so than Peoria, anyway," Kerestesi said.

Congress now appears likely to renew the act, though in revised form, under heavy pressure from an increasingly anxious collection of insurance companies and other industries -- and governors.

Nevada Gov. Kenny Guinn was among 28 governors who wrote to congressional leaders Nov. 8, urging quick renewal.

Gaming officials and developers have lobbied Senate Minority Leader Harry Reid, D-Nev. Reid, a leading advocate for renewal, said the legislation had met with some Republican resistance.

The act's renewal also has met with some controversy. As the House Financial Services Committee considers legislation that would renew the act, there are likely to be some key changes. The committee is scheduled to meet today.

The 2002 legislation originally was viewed as a three-year fix to give insurance companies time to study their risk and devise a way to pay claims in the wake of a major attack. Many industry officials say they still cannot adequately set terrorism insurance premiums because it is so difficult to estimate the risks.

But some lawmakers believe the insurance industry should stand on its own. Among the changes under discussion is a two-year renewal of the act that would dramatically raise the $5 million trigger to $50 million next year and $100 million in 2007.

Insurance companies don't like that change. It could price some small companies out of insurance, Rochman said.

But some form of the act is desperately needed, industry officials said.

"Unfortunately, we are still in an environment where the threat of a catastrophic terrorist attack on domestic soil is still very real," Rochman said.

Benjamin Grove can be reached at (202) 662-7436 or at grove@ lasvegassun.com.

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