Insurers must pay up

The devastation already inflicted on the survivors of the Sept. 11 attacks would be compounded if many of the nation’s insurance companies have their way. Estimates of the property loss from the terrorist attacks are in the billions of dollars and still rising, but the insurance industry is seeking to back out of its obligations to cover policyholders at a time when companies and individuals need this protection from financial ruin.

The greater outrage might be the Bush administration’s rush to make insurers’ irresponsibility a taxpayer liability. Under a plan announced Tuesday, the president proposed having the government cover 80 percent of the first $20 billion in insurance claims and 90 percent of the next $80 billion. The plan also proposes capping insurers’ liability for terrorism claims at $23 billion in 2003, with insurers paying at 100 percent for only the first $10 billion in claims. In 2004, the industry’s liability would be limited to $36 billion, with insurers responsible for full coverage on only the first $20 billion in claims.

Official estimates place the total cost of insurance claims resulting from last month’s attacks between $30 and $50 billion. This is real money, even in Wall Street’s terms, but significantly less than the roughly $300 billion the nation’s insurers have available to cover claims.

The New York Times cites administration sources saying the reason Bush selected insurers for a bailout, rather than another name on the endless list of candidates for Washington’s aid, was that insurance companies said they will no longer cover damage from terrorism. If this is the case, every industry that bargains for federal dollars by claiming a willingness to meet halfway has taken the wrong approach. It seems a display of unmitigated irresponsibility and contempt for one’s customers is the new standard for raiding the public treasury.

Insurance companies play a vital economic role by allowing individuals and corporations to know their hard-earned property is, for a price, protected if a disaster strikes. When that disaster finally arrives, insurance companies have a responsibility – even with legal questions aside – to provide the services they promised, and their customers have a right to expect the protection they paid for. Even if the sudden influx of claims forces insurers to raise their premiums, it is better to distribute costs that way – as those with more property to insure pay more in premiums – than to have the government recovering its bailout costs with a regressive income tax.

Bush should listen to the many members of Congress from both parties who have said they cannot defend his plan. The rest of the nation has pitched in to help New York, and the president should force insurers to do the same.