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Reps. Oxley and Kelly Release Excerpts from GAO Report Bolstering the Case for Terrorism Insurance Protection

February 26, 2002

Click Here to View GAO Report [pdf]

In anticipation of Wednesday afternoon?s hearing on the subject of commercial terrorism insurance, House Financial Services Committee Chairman Michael G. Oxley (OH) and Oversight and Investigations Subcommittee Chairwoman Sue Kelly (NY) released excerpts from a forthcoming report researched by the General Accounting Office (GAO). 

The report is expected to underscore the need for terrorism insurance protection in the wake of 9/11.  Particularly since January, commercial terrorism insurance has become less available, and many bank loans and expansion projects have been canceled or are no longer fully insured.

The House passed the Terrorism Risk Protection Act on November 29, 2001, but the Senate has taken no action.  H.R. 3210 would provide a federal backstop in the case of a future terrorist attack.  The legislation, now pending in the Senate, would authorize short-term federal loans while ensuring the money is paid back to the taxpayer. 

The hearing ? entitled ?How much are Americans at risk until Congress passes terrorism insurance protection?? ? is scheduled for 3 p.m. on Feb. 27 in room 2128 of the  Rayburn House Office Building

 Quotes from the GAO report entitled: ?Terrorism insurance: Rising Uninsured Exposure To Attacks Heightens Potential Economic Vulnerabilities?

?What is clear is that in the absence of terrorism insurance, another terrorist attack would dramatically increase direct losses to businesses, employees, lenders, and other noninsurance entities beyond those resulting from September 11th.  Furthermore, should the government decide to intervene after a future attack, it would do so without readily available claims-processing and payment mechanisms that exist in the insurance industry.  Even in the absence of an actual terrorist event, however, there are growing indications that some sectors of the economy ? notably real estate and commercial lending ? are beginning to experience difficulties because some properties and businesses are unable to find sufficient terrorism coverage, at any price.  If allowed to go unchecked, these difficulties are likely to increase as more insurance contracts come up for renewal over the next year.  The resulting economic drag could slow economic recovery and growth.?

?Since the September 11th attacks, the key dynamic taking place in the insurance industry has been a shifting of the risk for terrorism-related losses from reinsurers to primary insurers and then to the insured.  Reinsurers and insurers have begun shedding their exposure to terrorism risk as insurance contracts have come up for renewal, leaving policy holders increasingly exposed to losses from a terrorist attack.?

?Reinsurers and insurers have begun shedding their exposure to terrorism risk as insurance contracts have come up for renewal, leaving policyholders increasingly exposed to losses from a terrorist attack.?

?Large companies, businesses of any size perceived to be in or near a target location, or those with some concentration of personnel or facilities, are unlikely to be able to obtain a meaningful level of terrorism coverage at an economically viable price.?

?The potential for more severe economic impacts is increasing as the level of uninsured risk climbs.?

?The economic burden of another terrorist attack would fall increasingly on policyholders as the insurance industry sheds or limits its risks to such exposures, raising the potential for more devastating economic consequences should such an event occur.?

?The potential economic impacts of another incident on the scale of a September 11th attack could become even more devastating absent insurance mechanisms to quickly help businesses recover and restore economic activity.?

??some financial problems are surfacing due to the lack of terrorism coverage??

?[The lack of adequate terrorism coverage has made] lenders? and investors? collateral [] less secure, raising their risk of loss.  At the same time, higher costs for insurance may make it more difficult to pay their loans.  Ultimately, the shifting of terrorism risk leaves property owners and developers, along with their employees, lenders, investors, tenants, and other affected parties much more vulnerable to severe or catastrophic economic consequences in the event of another terrorist event.?

?As businesses both large and small are faced with uninsured losses that threaten their ability to survive, Congress could be faced with a time-critical decision to intervene or not.  A decision not to act could have debilitating financial consequences for businesses, together with their employees, lenders, suppliers, and customers.?

Source:House Financial Services Committee

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