Santa Monica, CA — A consumer group today condemned the federal terrorism insurance bill, S.2600, currently being debated in the US Senate, for a provision that removes states’ rights to regulate insurers with respect to terrorism coverage. This bill would pre-empt the “prior approval” system that is used by 22 states in the setting of commercial insurance rates. Regulators, under the prior approval system, retain the right to investigate, reject or modify proposed insurance rates if the department determines the rate to be inappropriate.

“The insurance industry has hijacked the terrorism insurance bill in order to destroy state oversight of insurance rates and the basic premise of state insurance regulation,” said senior consumer advocate Doug Heller, with the Foundation for Taxpayer and Consumer Rights (FTCR). “That insurance companies would use a national tragedy to line their own pockets is a national betrayal and must be stopped.”

According to Section 7 of S.2600, ironically called the “Preservation of State Law” section: “rates for terrorism risk insurance covered by this Act and filed with any State shall not be subject to prior approval or a waiting period, under any law of a State that would otherwise be applicable…”

States such as California do not allow insurance companies to simply increase rates. California law, as enacted by voter approved Proposition 103 in 1988, subjects all rate changes to a public process, which includes actuarial analysis, the opportunity for public input and requires insurers to defend the rate change. Under the federal bill, insurers will be allowed to file and use rates without any prior public scrutiny, which will lead to unnecessarily high rates.

“Throwing out states’ rights to investigate and challenge insurance rates is like telling judges that they can’t hear from witnesses.”

Terrorism Bill is A Bailout for the Insurance Industry

The insurance bill, in total, has been chastised by consumer groups, including FTCR, as a bailout of insurance companies. It creates a broad based taxpayer back-up for insurance policies covering very loosely defined “acts of terrorism.” The bill would provide US tax dollars to pay up to 90% of the losses in the event of such an act. FTCR argues that insurers, if they cannot independently cover potential risks, should pool premiums and create a private, mutual backstop for terrorism losses, rather than using taxpayer dollars to the bankroll the insurance industry, which would, nevertheless, still collect terror insurance premiums.

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