WASHINGTON – Maryland insurance administrators have approved hundreds of insurance company requests to drop terrorism coverage from their property and casualty policies this year, and separate terrorism policies are either largely unavailable in Maryland or too expensive.
While that would appear to leave businesses and individuals in the lurch, state officials said they have little choice but to approve the terrorism exclusions. Without the exclusions, they said, general policies would dry up or become too expensive to write.
“The reality is no one is offering terrorism insurance in Maryland,” said Debbie McKerrow, a spokeswoman for the Maryland Insurance Administration.
That has led to a boom in alternatives like self-insurance, said Cheye Calvo, program manager for the employment and insurance program at the National Conference of State Legislatures.
Calvo said businesses were already shifting toward alternative forms of insurance because of high costs, “but the events of Sept. 11 drastically accelerated those trends.” He said that the percent of businesses that resorted to alternative insurance jumped from about 30 percent before Sept. 11 to nearly 50 percent today.
“Traditionally, self-insurance has been unattractive to commercial policy holders because of the unpredictable nature of it,” Calvo said.
That changed after Sept. 11, when insurers started running for the exits.
“To date we have received 270 filings from property and casualty insurance companies for terrorism exclusions,” McKerrow said.
She would not release the names of any of the companies that have filed, for fear of “singling any company out,” but she noted that any “one company might have multiple filings.”
McKerrow said that before Sept. 11, property and casualty insurance policies generally did not exclude terrorism coverage.
Model terrorism exclusion language was drafted by the Insurance Services Office Inc. in early November, after it became clear that Congress would not create a federal fund to back up insurance companies saddled with Sept. 11 terrorism claims.
It defines terrorism as any act that damages or threatens human life or property and “appears in whole or in part to intimidate or coerce a civilian population or disrupt any segment of a nation’s economy or influence the policy of a government by mass destruction, assassination, kidnapping or hostage- taking.” Terrorism can also be any incident “determined to be such” by a government agency or official authorized by law to make that determination.
The terrorism exclusion language was backed by the National Association of Insurance Commissioners and has been adopted by 45 states, including Maryland. Calvo said only New York, California, Texas, Georgia and Florida have refused to adopt the exclusion language.
Opponents worry that the exclusion limits in the model language are too low. Calvo said the guidelines would cover up to $25 million in terrorist- related damages.
But while the exclusion has its critics, there are also those who claim it is beneficial.
“It does not sound consumer-friendly, but it does allow insurers to write regular property insurance,” McKerrow said.
President Bush last week pushed for legislation to help insurers cover the cost of catastrophic losses from a terrorist attack, saying a viable insurance market is essential to the economy.
“The pace of new construction is dropping dramatically in America,” Bush said, warning that banks, investors and other lenders will not finance construction projects that do not have terrorism insurance.
In February, nonresidential building construction was down 3 percent from January and down 17 percent from February 2001, the White House said. Bush framed the insurance debate as a jobs issue.
“If people can’t buy insurance on a construction project, they’re not going to build the project. And if they don’t build the project, somebody’s not working,” Bush said.
But others see insurance industry’s behavior is another way to profit.
“When an insurer excludes terrorism coverage and then increases rates . . . that’s price gouging,” said Travis Plunkett, the legislative director of the Consumer Federation of America.
McKerrow sees it differently.
“Insurance companies have to stay in business just like the rest of us. It’s to nobody’s advantage to have insurance companies go out of business,” she said. “Then how would you get all the other kinds of insurance?”