Crop failures and floods are already insured by
federal programs.
Other countries - such as Britain and France - have, for many years,
had arrangements to augment funds from insurance premiums in case of an
unusual catastrophe, natural or man made. In Israel, South Africa, and
Spain, terrorism and war damages are indemnified by the state or
insurance consortia it runs. Similar schemes are afoot in Germany.
But terrorism and war are, gratefully, still rarities. Even before
September 11, insurance companies were in the throes of a frantic
effort to reassert themselves in the face of stiff competition offered
by the capital markets as well as by financial intermediaries - such as
banks and brokerage houses.
They have invaded the latter's turf by insuring hundreds of billions of
dollars in pools of credit instruments, loans, corporate debt, and
bonds - quality-graded by third party rating agencies. Insurance
companies have thus become backdoor lenders through specially-spun
"monoline" subsidiaries.
Moreover, most collateralized debt obligations - the predominant
financial vehicle used to transfer risks from banks to insurance firms
- are "synthetic" and represent not real loans but a crosscut of the
issuing bank's assets.
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