[Congressional Record Volume 147, Number 163 (Thursday, November 29, 2001)]
[Senate]
[Pages S12166-S12167]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. McCAIN:
  S. 1744. A bill to ensure the continued financial capacity of 
insurers to provide coverage for risks from terrorism; to the Committee 
on Commerce, Science, and Transportation.
  Mr. McCAIN. Mr. President, while there are few people in the Senate 
more skeptical than I of providing Federal assistance to corporations 
or involving the Federal Government in private industry, the proposed 
wholesale cancellation of terrorism insurance coverage following the 
devastating events of September 11, dictates that Congress act before 
the end of this session to ensure that this coverage continues to be 
available and affordable. Since 1945 when Congress delegated the 
responsibility of regulating insurance to the States, the Federal 
Government has honored this delegation and, with the encouragement of 
state regulators, kept out of the business of insurance.
  In a recent letter to Treasury Secretary O'Neill, however, the 
National Association of Insurance Commissioners, NAIC, implored the 
Federal Government for help. ``What has not been widely reported is 
that insurers are now issuing notices of non-renewal and filing across-
the-board property and casualty exclusions for terrorist risk with 
state insurance regulators,'' the NAIC wrote. ``[W]e need the Federal 
Government to act soon to give certainty to this situation * * * 
further delay inadvertently could cause greater market disruption, thus 
making the need for quick action imperative.'' I agree.
  The bill I am introducing today draws from the many good ideas 
proposed by members of Congress and by the Administration to deal with 
the imminent cancellation of terrorism insurance coverage, and attempts 
also to address concerns raised with each of these proposals. It is by 
no means a perfect bill and I look forward to working with the 
Administration, my colleagues, state insurance commissioners, and other 
interested parties to improve it. While rough, the bill does reflect, 
however, what I believe to be the core principles that should be 
included in any legislation designed to keep terrorism insurance 
affordable and available. These principles include making Federal 
intervention short-term; deferring to states on questions of rate 
regulation; requiring insurance companies and the insurance industry to 
bear enough risk to promote responsible claims handling and to ensure 
that incentives to protect against acts of terrorism are in place; 
fairly allocating the costs of a terrorist event among insurance 
companies, and between policy holders and taxpayers; and generally 
prohibiting the award of punitive damages in claims arising from acts 
of terrorism.
  There has been much debate about whether the taxpayers should bear 
the cost in the short-term of another terrorist event, or whether this 
cost should be borne by policy holders. The answer, perhaps, is that 
the cost should be shared. I propose in this bill that federal 
assistance up to $50 billion be paid back by commercial property and

[[Page S12167]]

casualty policy holders through a capped surcharge on their premiums. 
For Federal assistance between $50 billion and $100 billion, which 
would be required only in the case of a truly catastrophic, perhaps 
cataclysmic event, however, the bill does not require repayment.
  The following is a summary of the major provision of this bill. I 
look forward to working to improve it and to passage of needed 
legislation on terrorism insurance before the end of this session.
  The bill provides a Federal backstop for certain insured losses due 
to acts of terrorism up to $100 billion per year in 2002 and 2003. The 
Federal Government would get involved, however, only if there is an act 
of terrorism during these years that exceeded individual company 
retentions. If a commercial insurer reaches these retention levels, the 
federal government would provide assistance for 80 percent of the 
companies' losses above the retention.
  To provide uniformity, the bill preempts state definitions of 
``terrorism'' and delegates to the Secretary of Commerce the 
responsibility of determining whether or not an act of terrorism has 
occurred.
  Federal assistance is available only to companies whose annual 
terrorism-related losses in certain lines of commercial property and 
casualty insurance exceed the greater of $10 million or 5 percent of 
gross direct written premium in the previous year.
  Only companies that meet the company retention trigger can obtain 
assistance from the Federal Government. Outlays for losses up to $50 
billion are repaid by insurance policy holders through a surcharge 
imposed by the Secretary of Commerce on covered lines and collected by 
commercial insurers. These surcharges cannot exceed 6 percent of annual 
premiums, and the Secretary has the discretion to adjust the surcharge 
to reflect different risks in urban and rural areas.
  Federal outlays up to $50 billion are paid back over time by 
commercial property and casualty policy holders. Federal outlays for 
losses over $50 billion are not recoverable.
  Rate regulation is left to the states.
  Except with respect to claims against terrorists and their 
conspirators, punitive damages cannot be recovered in claims arising 
out of acts of terrorism.
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