<p>WASHINGTON – President Bush last week stepped into the ongoing Congressional controversy of terrorism insurance that has varying degrees of importance to credit unions depending on who you ask. The question before the U.S. Senate is whether the Federal Government or the market needs to be the "the insurer of last resort" in case of terrorism attacks. "We need to do something on terrorism insurance," President Bush told business leaders on April 8. "This is an issue I don't think a lot of Americans understand very well and we're going to use this opportunity to explain it." The issue, according to the President and others, revolves around who will pay in the event of another terrorist attack on the scale of the September 11 attacks. The primary insurers will pay the primary ocosts for the damage, but the question is who will in turn carry the risk for the insurance companies, who will be the so-called "reinsurers." According to industry estimates, the September 11 attacks cost the insurance industry between $36 and $54 billion, an amount the insurance industry has said it cannot face again without being able to rebuild its reserves, which takes time. As a result greater numbers of companies have either been refusing to write coverage that includes terrorism events or have been charging higher premiums for products that have lower coverage limits. This, in turn has been having a negative domino effect as so called "trophy properties" (stadiums, large office towers, malls) have either not been able to get coverage and other commercial property and construction has had to pay larger costs for the coverage they are able to get. In some cases cited by the President and proponents of a federal solution, the inability to get terrorism insurance has forestalled construction amounting to costing thousands of jobs leading, they say, to a dip in non-residential construction even as other areas of the economy pick up. The measure before the Senate (the House has already passed a bill) would make the federal government responsible, whether through loans or other means, for the ultimate costs of terrorism damage. Under the terms of the previously passed House bill, insurance and reinsurance companies would pick up the cost of the first $10 billion in damage for an event that took place between 2003 and 2005 and the federal government would grant long-term loans under generous terms for any damage above that amount. The bill would lapse after 2005, unless renewed, in the hope that the market could come up with enough approaches to cover the possible damage without government help, according to bill proponents. A widely recognized consensus bill has yet to emerge in the Senate. Whether this is a particular issue credit unions should care about depends on whom you ask. Bill Hampel, Chief Economist with CUNA, argued bluntly that it's not a credit union economic issue. "Credit unions do so little commercial lending," he pointed out, that the issue really doesn't have much of an impact on them. Larry Blanchard, senior vice president for CUNA Mutual Group countered that anything which could have as substantive a drag on the economy as this could has got to concern credit unions, particularly those whose members are heavily in the building or other trades. "It's about jobs," Blanchard said, "and jobs for credit union members have to concern credit unions." Jonathan Lindley, vice president of NASCUS, pointed out that credit unions should care about the issue, out of "enlightened self interest" if nothing else. "This is not as much a insurance issue as it is a lender's issue," Lindley said. "As more insurers withdraw coverage, exclude terrorism damage or lower limits it's going to leave the lenders exposed," He added. He called the current controversy a "continuation" of previous similar insurance debates over flood and earthquake insurance. In those situations certain areas have been deemed to be of such high risk that homeowners in those areas, and credit unions that lend to them, could not get coverage against those two natural disasters, he said. "I can think of a lot of areas that could be deemed major risk areas for terrorism," Lindley said. "I wouldn't want to write any policies on property down by the Capitol [in Washington] or if I did I would want a whole lot of money for doing it." In some designated areas the risk could even become significant in the homeowners insurance arena and that could have more of an impact on certain credit unions, he added. The President supported proponents of the federal response in his Monday comments, at one point seeming to echo Larry Blanchard's remark that the issue is "about jobs." Among the specific situations the President described was a 1.5 million square foot office development in downtown Chicago that Hyatt has had to suspend because no insurance has been available. That hiatus has held up 2,500 jobs. He also outlined a similar project in Nevada, where a $2 billion development could provide 16,000 long-term jobs. But support for a federal response has not been uniform. The Consumer Federation of America (CFA) and Consumers Union have both urged Congress to not rush into any commitments, reversing a previous position where they both had supported federal action. "I am well aware of the irony of a consumer advocate urging that the federal government allow the market the time to try to solve the problem," said Travis Plunkett, Legislative Director for the CFA. "But we are not against free markets, just unfettered free markets and we think a federal give away on this issue will be premature." CFA admits that there have been problems and are problems getting insurance, Plunkett said, but the group contests the notion that these problems are "systemic." "What we are seeing are spot problems and certainly high rates in some instances," he said. "But we don't think these rise to the level where they need a federal response." CFA also pointed out that the market is adjusting to meet the demand. In an April 8 press release the group pointed out that the airlines have set up its own reinsurance company to handle terrorism claims. Other insurance companies have set up reinsurance arrangements and the Library Tower, the tallest building in Los Angeles, definitely a "trophy property" was able to be sold after the buyers were able to find adequate insurance, the press release said. Industry and congressional sources say the prospects of passing legislation are unclear. The Senate has 70 bills that the House has sent over that it must deal with, and some of those are the contentious annual spending measures. Interestingly, Blanchard and other sources say that the biggest stumbling block in the way of the bill is a dispute over whether to allow punitive damages in the case the federal government is recognized as the insurer of last resort. The bill passed in the Republican dominated House would forbid suing for punitive damages if the federal government is the insurer of last resort and that part of bill has reportedly irritated some Senate Democrats.</p>

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