Taxpapers as Last Insurers

For insurance companies, Sept. 11 greatly changed perceptions of the future. The threat of terrorism has meant a radical reassessment of risk.

This dilemma has put the industry next in line after the airlines for government help. It argues, with some persuasiveness, that terrorism now presents issues of damage and liability so vast and unknown that only government can be the insurer of last resort. A number of reinsurance companies - which are paid to assume some risk shouldered by primary insurers - have said they won't issue policies covering terrorism.

With major policies up for renewal at the end of the year, a reluctance among insurers to cover this threat could discourage lending and investment and become a drag on economic growth. In that sense, insurers can assert that their problems have broad ramifications for the economy, as the airlines did, and warrant federal aid.

But this is an area the government should step into gingerly. Federal underwriting of other kinds of disaster insurance has helped many people, certainly, but it has also had unfortunate effects - such as encouraging development on land predictably subject to floods and storms.

If taxpapers are to provide insurers a federal umbrella against terrorism, it should be with assurances that insurers will still bear a substantial share of the costs and with incentives for companies being insured to do all they can to protect people and buildings against terrorist attacks.

That would allow business to move ahead with a greater margin of comfort. It's not an ideal solution, but it's clearly a pragmatic step.