Terrorism: The Issue of the Moment at Dallas All Industry Day

December 16, 2003

“Dirty bomb” was the phrase of the day at the All Industry Day held Nov. 25 in Dallas—perhaps not so surprising, given the fact the conference was titled, “Confronting Terrorism, Not If But When.”

The “I” Day, jointly sponsored by the Independent Insurance Agents of Dallas, the Dallas Chapter of Chartered Property and Casualty Underwriters and the University of North Texas, was packed with continuing education seminars that focused on the problem of terrorism. What was surprising, and not a little disconcerting, was how often the phrase was heard during the various conference seminars. The apparent consensus from those who study these things is that the next big terrorist attack to occur on U.S. soil could very well be a dirty bomb.

Ernst Csiszar, the charismatic Insurance Commissioner of South Carolina and a staunch advocate of the free market system, began the day with a presentation entitled, “Socialism Revisited—The Insurance Indus-try in America.” Csiszar, who was born in Romania under Communist rule and emigrated to Canada in 1966, likened the damage from a dirty bomb to that of the devastation wrought by the explosion in the nuclear reactor at Chernobyl, in the Ukraine near the border of Belarus in 1986.

In that disaster, he said, a vast amount of land was left uninhabitable, the population suffered from high rates of cancers, and radiation-induced defects soared among children born after the event, among other things. Csiszar acknowledged that there is “no way to plan for that,” but related that at a meeting of terrorism experts he attended recently the dirty bomb scenario was considered to be not an unlikely one.

In addition to terrorism, Csiszar touched on such issues as state versus federal regulation of insurance and the merits of an appointed state insurance commissioner, like himself, compared with an elected one.

Noting that he is an “unabashed supporter of state regulation,” Csiszar said the approval processes in the 50 different states present problems for insurers, along with regulators’ propensity for “over-regulating the trivial and under-regulating the essential.”

With regard to federal regulation, he added, “My fear is
that I know what the (federal) regulatory process is going to look like.” To Csiszar, the first problem is the size of the federal bureaucracy; the second is the amount of paper that would be generated at the federal level and the third problem is attitude. “Walk into a federal office and try to find a cheerful face to help you. … They are trained to tell you ‘no,'” he added.

“The real discussion … is about what is good regulation and what is bad regulation,” he said. “Where does government stop and private industry begin?” He asserted that such a choice should not be left up to legislators, many of whom are trial lawyers.

In a morning session, “How are Businesses Assessing Terrorism Risk,” moderated by Dennis McCuistion, executive producer of the PBS television program, McCuistion, a group of business executives responded to questions from the attendees, as well as McCuistion himself. The panelists included David Chavenson, VP and treasurer, Flowserve Corporation Inc.; Brian Coates, manager, PriceWaterhouseCoopers; Christopher Schupp, president, Robert Lynn Company; Tom O’Donovan, senior property syndicator, AON Risk Services; and Gonzalo Ornelas, treasurer, H.B. Zachary Construction.

Coates noted that in most U.S. industries terrorism had not been addressed before Sept. 11, 2001, with the exception of the oil and gas industry. “Because these companies tended to work overseas they were more exposed to the risk of terrorism and had therefore taken some precautions,” Coates said. “For most of those, however, those precautions were taken overseas, so they had not done much to secure their locations here in the United States.”

Stating he would not disagree with Coates’ assessment, AON Risk’s O’Donavan said, “I think the one difference with the 9/11 incident, as opposed to the Oklahoma City bombing and the previous World Trade Center bombing, is that the insurance industry reaction to 9/11 of restricting coverage did not happen in prior incidents. And I think that really raised the focus for a lot of businesses to terrorism and the need for really planning a response in the event of terrorism.”

As for actually purchasing terrorism risk insurance, O’Donovan said in his experience about a quarter of those offered the coverage are buying it. He noted that it is a price sensitive issue and his clients are evaluating the insurance in terms of risk versus value. Problems arise for businesses from the federal Terrorism Risk Insurance Act (TRIA) itself, in the gray area of what is or is not terrorism.

The joint issues of price and what a company gets for its money are obstacles for businesses, the group concluded. “There’s an army of attorneys at all these large insurers that are trying to figure out ways to exclude your coverage,” said Flowserve’s Chavenson. “… You think you’re buying something and when it comes to reading the fine print you might not be.”

Chavenson, whose company does business in Iraq as well as other Middle Eastern countries, said cost increases in all lines of commercial insurance have really hit businesses hard. “For most of us who work in small or medium sized businesses … the real headline is the tremendous increase in insurance premiums over the past couple of years,” he said. “It’s getting kind of tiresome for me to go into my boss and say, ‘our premiums are going to double, our premiums will triple, or quadruple.’ Even after we raised deductibles and all the sorts of things we do. And so to go in and say, ‘do you want to buy terrorism risk cover?’ … It just doesn’t seem to go very far.”

To read the full story, see the Dec. 15, 2003 issue of Insurance Journal-Texas/South Central.

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