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News
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Plan may squeeze insurers
graphic October 31, 2001: 7:19 a.m. ET

Government's $10B deductible for terrorism may lead to an insurance crunch.
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  • Anthem boosts IPO size - Oct. 29, 2001
  • Lloyd's trade group under attack - Oct. 29, 2001
  • O'Neill offers plan on insurance - Oct. 24, 2001
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    NEW YORK (CNNmoney) - Administration officials and insurance executives will likely approve a proposal aimed at putting a stop loss on future insurance claims covering terrorist attacks, but the plan may not stop insurers from discontinuing policies with terrorism inclusions, according to a published report Wednesday.

    The Senate Banking Committee's plan proposes insurance companies cover up to $10 billion annually before the government would step in to cover the remainder. For claims exceeding $10 billion, insurance firms would pay 10 percent above the deductible and the government would handle the remaining 90 percent, according to the Wall Street Journal.

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    But most insurance analysts say the $10 billion deductible is too high and will either force carriers to hike rates sharply or discontinue terrorism coverage, the paper reported.

    "It appears many insurers would be severely damaged, if not bankrupted, by a disproportionate share of a $10 billion loss," Alice Schroeder, a property casualty analyst with Morgan Stanley, told the Journal. "We believe that a certain amount of insurers may simply withdraw from writing certain lines of business."

    Major reinsurance companies, or those firms that cover insurance companies, said they will not renew terrorism coverage after Dec. 31, when most policies expire, the paper reported. In turn, insurance companies will not be able to offer terrorism coverage -- and without coverage, it is the policy of most banks not make loans to companies without complete insurance coverage. graphic

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