Already struggling in a difficult market, reinsurers reeling under the additional financial impact of the vast losses of September 11 asked governments for a rescue plan in case a similar event recurred. The proposal asked the government to act as a type of last resort insurer. In the end, however, it appears that the matter may be moot.
The idea of a reinsurance “pool” for acts of terrorism has been considered in the numerous countries, including the United States and Canada. The Canadian plea is for the federal government to act as insurer of last resort, selling coverage to reinsurers on a case-by-case basis for needs above a minimum level.
George Cooke, President and CEO of The Dominion of Canada and Chair of the Insurance Bureau of Canada (IBC), was amongst the applicants. He says that a great deal of discussion occurred between the Federal Finance Department and the IBC. The program would have been similar to a group plan in which each member reinsurer would pay premiums to the government in order to have coverage, explains Mr. Cooke.
The United States has been in the throes of a similar discussion, but it appears there also that reinsurers are no closer to a solution. Part of the problem is that there is simply a matter of defining the exact nature of the government’s involvement.
Pundits for the U.S. plan, hopeful that Congress would quickly pass a definite plan before Christmas, were disappointed when New Year began with still no resolution of the issue.
The fact that the U.S. resolution remains absent is part of the problem, says Stan Griffin, Vice-President for Regional Operations with the IBC and coordinator for the task group looking into the issue. “The Canadian federal government was taking the position that they wanted to limit their involvement as much as possible and not act in advance of the U.S. congress.”
“It became very evident to us before Christmas that – if the U.S. Congress did not approve a program in the U.S. – it would be unlikely that we’d see something in Canada.
Mr. Cooke notes that, although the project has been more or less been shelved for now, the file is still open.
He says the marketplace has evolved considerably since September 11. The need for the plan is no longer so heavy.
The higher prices have allowed the marketplace to be re-established, continues Mr. Cooke. That, along with more extensive and refined policy wording, has given underwriters the confidence to wade back in business.
“In the course of 2002,” says Mr. Cooke, “the reinsurance model will evolve with regard to large commercial risk. Large office buildings will be viewed more as concentrations of risk, as opposed to as amalgamations of risk.”
There are a number of large commercial and industrial exposures in this country that will go above and beyond the maximum amount of coverage allowed by reinsurers, Mr. Griffin explains, and those are a concern. “That’s where our last round of discussions tried to bring our earlier proposal down to dealing purely with target risks.”
Risks that have a value above $500 million in insured value are among the target risks. Mr. Griffin says Canada may have up to 100 of such risks, and that number includes properties such as the Air Canada Centre, the Skydome, the CN Tower, and most of the bank towers in Toronto.
Although there will be no terror reinsurance pool for now in Canada, Mr. Cooke emphasizes that the extensive discussions that led to those decisions were not useless. He feels confident that, should another act of terrorism of that magnitude occur, the government and the insurance industry together will be better prepared, having already negotiated many of the details.