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Jewish World Review July 23, 2002 / 14 Menachem-Av, 5762

Doug Bandow

Doug Bandow
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Shifting the risk to Uncle Sam | Congress is busting the budget and the administration is an accomplice. Explains Sen. Harry Reid, the Senate Majority Whip, "The president wants this very badly. We want it. The House wants it." What do they want? The taxpayer to pay to insure someone who builds a towering new skyscraper, huge new mall or luxurious new stadium.

The Senate recently joined the House in approving terrorism insurance, which now goes to conference committee. At least the House would require repayment of low-interest loans intended to tide over private insurers. The Senate would force taxpayers to cover 80 percent of losses up to $10 billion (minus some contribution from insurance companies) and 90 percent of everything above.

As policies came up for renewal this year, insurers started excluding terrorism coverage. Reinsurers, who help insurance companies spread the risk, began dropping terrorism coverage. But despite fevered warnings from insurers, banks and real estate firms, the construction market did not collapse, bank financing did not disappear and business did not flee from New York City. In fact, in May, the Federal Reserve reported that eight of 10 U.S. banks had seen "little or no change in demand" for financing substantial real estate projects lacking terrorism insurance. Banks said the absence of insurance was not causing them to reject projects.

In fact, despite the shock waves created by Sept. 11, markets quickly responded to new profit opportunities. Carol Loomis reported in Fortune magazine: "The premiums that insurers could charge suddenly rocketed upward into what's called a 'hard market.' ... It describes a period in which prices are high enough to potentially cover the industry's risks and provide it with something it almost never has: a decent, or maybe even good, return on equity."

Within six months of the attacks, more than $25 billion in new money poured into the industry. A flurry of new insurance companies opened in Bermuda, with the six largest alone generating $7 billion in capital.

The German firm Allianz announced plans earlier this year to create a terrorism insurance unit. Along with Zurich Financial Services, it will offer coverage in the United States and Europe. Indeed, as Sept. 11 has receded, prices have fallen and significant coverage has become available. Says Gary Mathieson, an insurance broker with Willis Group Holdings, "every day it is getting more affordable."

In April, Donald Kramer, vice chairman of ACE, declared: "Is terrorism insurable? Everybody's said no. Yet everybody's coming out with terrorism products." There are even creative alternatives. Commercial air carriers are planning to create a self-insurance fund through the industry's Air Transport Association.

All told, reports John B. Levy, president of John B. Levy & Co., a Richmond, Va., real estate investment banking concern: "For the vast majority of real estate deals, terrorism insurance hasn't been the huge issue that most people thought it would be." Although Washington, D.C., is obviously a prime terrorist target, city Insurance Commissioner Lawrence Commissioner says he's received no complaints about inadequate coverage.

Walter L. Harris, president of Tanenbaum-Harber, a brokerage firm that concentrates on large New York City buildings, reports that terrorism coverage "is available, for the most part, at a price." Mathieson estimates that the premium even for so-called trophy buildings is only one to two times overall commercial coverage.

Berkshire Hathaway's Warren Buffett has pressed for federal subsidies. Yet his company is covering Chicago's Sears Tower. The "problem," then, is that coverage is more limited and more expensive than property owners desire. Seven of 10 corporate risk managers told UBS Warburg and Mactavish Research that rate increases were "unjust" or "outrageous." Well, unjust or outrageous only if one ignores the $50 billion payout for Sept. 11, for which insurers collected astonishingly low premiums, in retrospect. Government subsidies don't eliminate risk. They only rearrange who bears it. If the Mall of America in Minneapolis, Yankee Stadium in New York or Sears Tower in Chicago become more expensive to insure, owners and customers should pay -- not taxpayers working on a farm near, say, Elkader, Iowa.

It is bad enough to put an entire industry on the federal dole. But Sen. Charles Schumer (D-N.Y.) would coddle individual companies. He pushed through an amendment providing aid not only if industry losses exceed a certain threshold, but if individual company losses exceed a certain threshold.

Warned Sen. Phil Gramm (R-Texas), "The taxpayer is exposed very, very early in the process."

Washington, D.C., abounds with crises, stoked by fevered interest groups attempting to stampede credulous politicians. So it is with the alleged crisis involving terrorism insurance. There is no crisis, only the failure of markets to work in the way that business interests and their political allies want them to work. Uncle Sam should stay out.

JWR contributor Doug Bandow is a senior fellow at the Cato Institute. Comment by clicking here.


07/16/02: Fighting the patent wars
07/09/02: Getting that quota feeling
07/02/02: Teetering on the Democratic edge
06/25/02: Judicial litmus tests
06/18/02: Killer teeth?
06/11/02: Europeans defending whom?
05/24/02: Threatening pharmaceutical innovation
05/14/02: The war crimes fantasy
05/07/02: Paying a high price for befriending Saudi princes
04/30/02: The price of postal monopoly
04/23/02: The war on charity
04/16/02: The forgotten human right
03/27/02: Cuba's struggle to be free
03/20/02: How to defeat Cuban communism
03/12/02: Junk science, redux
03/06/02: Axis of hubris
02/27/02: Washington-style campaign reform: incumbent protection
02/20/02: The grand Enron morality play
02/12/02: Rebuilding what?
02/05/02: Succumbing to the terrorist temptation
01/29/02: Democrats for what?
01/22/02: The Iraqi question
01/14/02: Profiling frequent flyers
01/08/02: Trade, not aid
01/02/02: Treason by any other name
12/26/01: Preserving freedom in an unfree world
12/17/01: Dealing with terrorism's aftermath
12/10/01: Emerging friendships?
12/04/01: Uncle Sam: Insurer of last resort
11/28/01: Expanding the circle of trade
11/20/01: Free to be stupid
11/13/01: The meaning of compassion
11/07/01: Patriotic scoundrels
10/30/01: The coming postal raid
10/16/01: First, do no harm
10/12/01: Good news from a suffering land
10/04/01: Defending whom?
09/25/01: The wrong solution to the wrong problem
09/21/01: The price of terrorism
08/28/01: Uncle Sam's retirement scam
08/21/01: Canberra's quaint naivete
08/14/01: Uncle Sam's false fuel economy
08/08/01: The Clinton administration in drag
07/31/01: The high cost of government
07/24/01: Kill the campaign reform illusion
07/17/01: Do as I say, not as I do
07/11/01: Lawyers at play
07/05/01: Western blundering, Macedonian disaster
06/26/01: How best to honor Bill Clinton?
06/19/01: A maturing Europe?
06/15/01: Tell Beijing to mind its own business
06/06/01: Ukraine's boiling cauldron
05/31/01: Protecting privacy from Uncle Sam
05/22/01: America's Balkan quagmire
05/09/01: The Taiwanese flash point
05/01/01: Globalization serves the world's poor
04/24/01: Who's cheating whom?
04/10/01: The NCAA scam
04/03/01: Balkan stupidities
03/27/01: McCain doesn't want a 'risk for our country'
03/20/01: Dubious Korean alliances
03/06/01: Coercive patriotism
02/27/01: Bombing without end
02/20/01: A dose of misplaced outrage
02/13/01: Psst: Tax cuts for taxpayers. Pass-it-on
02/06/01: Bridging the unbridgeable gap
01/23/01: Left-wing demagoguery
01/16/01: The drug war problem
01/10/01: Politics and trade
01/03/01: Hope for liberty?
12/27/00: The debris of war
12/19/00: What's the rule of law for?
12/15/00: Ending silicone breast implant saga
12/05/00: Election may yield victor, but there are no winners
11/21/00: A Bush presidential mandate?
11/07/00: Exprienced Gore? Yeah, right
11/01/00: Interventionist follies
10/17/00: America's brightening prospects in Ukraine
10/11/00: GOP budget scandals
10/03/00: How a pharmaceutical 'crisis' was created
09/27/00: Clinton's empathy has helped nobody
09/13/00: AlGore's risky budget policies
09/05/00: Military readiness and Korean commitments
08/29/00: Let sleeping hypocrites lie
08/21/00: Targeting a journalistic pariah
08/15/00: European garrison for Kosovo?
08/08/00: Journalistic cleansing at the Boston Globe
08/04/00: Junk science on trial
06/22/00: Eternal vigilance is the price of liberty
06/15/00: The end of U.N. peacekeeping
06/07/00: The Clinton regulatory miasma
06/01/00: Administration stupidity, congressional cowardice
05/25/00: The silence of the international community
05/18/00: Protecting the next generation

05/11/00: Freer trade with China will advance human rights

05/04/00: How not to save the Constitution

04/28/00: American tripwire in Korea long ago disappeared: Why are we still involved?

04/18/00: Clinton administration believes the IRS is too gentle, wants more auditors

© 2002, Copley News Service