The insurance industry hopes the Kenyan mall tragedy will convince Congress to extend Washington’s 11-year-old “terrorism insurance” program beyond its December 2014 sunset.
The horror of Nairobi “can easily be copycatted here in the United States, perhaps not just in one location but in several locations simultaneously,” Robert Hartwig, head of the nonprofit Insurance Information Institute, said this week.
The result of such a horrendous event would be a “large scale loss of confidence in the [terrorism insurance] market,” Hartwig added.
President George W. Bush signed the Terrorism Risk Insurance Act into law in 2002 after many insurance companies excluded acts of terror from commercial real estate policies — leaving property owners high and dry.
The law is set to expire at the end of 2014 and an extension of the law has been bottled up in Congress.
Hartwig testified Wednesday before a Senate committee about the need to extend the law.
The fear stressed in the Senate hearing is that, without the government backstop, prices for terrorism insurance will rise and there will be reduced availability.
That would hit particularly hard the owners of iconic New York skyscrapers and hotels that are logical terrorist targets.
Up until 9/11 almost all major corporations and developers had terrorism insurance, but after the attacks — which costs insurers $42 billion in today’s terms — the market for terrorism insurance froze, Hartwig said.
The current law guarantees 85 percent of losses due to terrorism attacks, with insurers picking up the first $100 million.
Wharton Professor Erwann Michel-Kerjan argued that the government would be picking up the bill regardless — as it did when it footed 88 percent of Hurricane Sandy’s costs.