Cbo Finds Difficulty In Determining Costs Of Senate Asbestos Bill

Liability & Insurance Week, Oct 13, 2003

The Congressional Budget Office has issued a cautious estimate of the costs associated with establishing the Asbestos Injury Claims Resolution Fund in the asbestos bill, S. 1125, which passed the Senate Judiciary Committee July 10.

"Contributing to the uncertainty of the cost to resolve claims under the bill are some significant features of the claims process that would only be defined in the implementation of the legislation," the report said.

"For example, under the bill, a Medical Advisory Committee would have significant discretion to determine the eligibility criteria and the award amounts for certain types of claims. The cost of the legislation could depend on the makeup, organization and operations of the Medical Advisory Committee.

"Without knowing the procedures this new committee would use, it is difficult to assess how conservatively it might approach its responsibilities or how liberally it might rule on exceptional claims."

The report also says past estimates of the number and value of asbestos claims have been inaccurate and CBO's estimates are based on similar forecasts.

In addition, it says, "the revenue stream that would be generated by the legislation is highly uncertain as well. Although the levy on defendant firms and insurers is fixed in amounts, a number of unknown factors described earlier make it difficult to project the receipts with much reliability."

It also noted the administrator of the fund could borrow funds to pay claims if amounts in the fund are inadequate, and there is no cap on the amount which could be borrowed.

As for the assessment on defendant companies totaling a minimum of $2.5 billion in each of the fund's first five years, it said there was "some risk that the minimum assessment might not be collectable."

It estimated the surcharge on defendant companies would be about $200 million in each of the first five years, but said it had insufficient data to estimate the surcharge on insurers.

As for the mandate assessment on insurers and reinsurers with asbestos-related obligations, it noted their aggregate contributions could not exceed $5 billion per year unless the administrator provided otherwise.

"However, the bill also would require every direct insurance company to pay 100 percent of its allocated amount within three years after the effective date of the bill," it said.

"Based on information from industry sources, CBO estimates that direct insurers would pay a total of about $22 billion into the fund during fiscal years 2004 through 2006 and that reinsurance companies would pay a total of about $4 billion into the fund during the first five years."

It estimated "the incremental cost for participant insurance and reinsurance companies above their expected costs (payouts) for asbestos claims under current law could amount to a total of about $6 billion during the first five years the mandates would be in effect."