WASHINGTON — WASHINGTON - The U.S. Treasury Department yesterday extended a provision of the terrorism-insurance program created after the Sept. 11, 2001, attacks, raising insurers' hopes that the entire plan will be renewed before it expires after 2005.
The provision requires commercial insurers to make terrorism insurance available on property and other policies. Insurance companies can set their own prices and, under the U.S. program, get money from the government to cover some losses in the event of an attack.
The extension, announced in a Treasury statement, may signal that the government is pleased with the results of the program, created in 2002, said Paul Mattera, a spokesman for Liberty Mutual Group, the No. 5 U.S. commercial insurer. Insurers lost more than $30 billion on Sept. 11, and are concerned that another terrorist strike may bankrupt companies without government support.
"Implicitly, it suggests that they believe the program's working, that it's an important part of our economic fabric and that the likelihood of their support for an extension has increased," Mattera said.
Treasury said it is still studying whether to recommend Congress renew the program, designed to increase the availability of terrorism insurance for property owners and shield insurers from catastrophic losses. The Treasury said it was "premature to draw conclusions" about an extension.
"The terrorism re-insurance program was an important confidence-builder as we recovered from recession," Treasury Secretary John Snow said in prepared remarks to hotel owners in Las Vegas. "The key to success of this program is that people at high levels of risk - like hotel owners - can obtain terrorism insurance at an affordable cost."
American International Group Inc., St. Paul Travelers Cos., Chubb Corp. and other insurers began excluding terrorism coverage from most property policies immediately after the Sept. 11 attacks, but the U.S. backstop required the companies to stop making the exclusions.
The provision that Treasury extended yesterday orders insurance companies to provide all clients with a quote for the cost of terrorism coverage. Clients aren't obligated to buy.
Insurers are lobbying to extend the program through 2007, mainly to protect themselves from workers' compensation claims, which have never permitted exclusions for terrorist attacks. The companies are pushing to get the law extended as quickly as possible because they will begin this fall to negotiate yearlong policies that will extend into early 2006.
"It will be much more difficult for the underwriters to make decisions about extending coverage into 2006 without knowing that there's a backstop," said Mattera. "Underwriters are going to be very reluctant to assume that risk."
Liberty Mutual, AIG and California's state insurer are the three biggest U.S. workers' compensation providers.
More than 44 percent of U.S. businesses elected to buy terrorism insurance as part of their property policies in the first quarter of this year, up from about 33 percent in the fourth quarter, according to a survey by insurance broker Marsh Inc., a unit of Marsh & McLennan Cos. More paying customers may help insurers reduce their risks, said Robert Hartwig, chief economist of the company-funded Insurance Information Institute.
The U.S. program compensates insurers for 90 percent of their terrorism losses up to $100 billion after they pay a deductible. The deductible rises to 15 percent of premiums next year, from 10 percent this year