The National Association of Independent Insurers (NAII) offered a proposal to address risks related to terrorism and other catastrophic losses in the wake of the World Trade Center disaster.
In addition, the Association staff will work with other industry trade groups to find “common ground” among the various proposals being developed for consideration by Congress this month.
The NAII contends that any congressional initiative should be simple, temporary in nature (until longer-range solutions can be studied more carefully), broad enough to address all non-insurable catastrophic events, and without cross-subsidies among insurers or product lines.
“Insurance markets have been disrupted as a result of the terrorist attacks,” said Carl Parks, NAII senior vice president of government affairs. “Reinsurers are excluding coverage for terrorism, which will make it extremely difficult for primary insurers to provide such coverage without risking the financial health of their companies. But while reinsurers can amend their policy forms without state regulatory approval, it is more difficult for primary insurers to make these changes.”
Parks indicated that Congress is likely to vote on a proposal before it adjourns later this month. “We believe that, given time, the market will adapt to the new environment, terrorism risks will be reduced, and coverage for these risks will become available,” said Parks. “As such, the most important component of our proposal is that any federal intervention should complement the private insurance market and be of limited duration.”
The recommended features of the NAII proposal include:
– Federal financial involvement would be as a high level backstop for the private property/casualty insurance sector. The program would sunset in three years, providing insurers, regulators, and legislators time to develop a longer-term approach that addresses the uninsurable but real exposures presented by terrorism and large natural catastrophes.
– The federal role would be limited to covering terrorism reinsurance claim costs, financing program start-up costs, implementing the enabling legislation, oversight in reinsurance pricing, and contracting operation roles to private sector sub-contractors.
– The program would not require a full-time, federal insurance regulator and could be rolled out as an adjunct program in an existing federal office.
– Contracts would provide “following form” coverage and not expand coverage provided by current primary insurers. Purchase of federal reinsurance contracts by primary insurers would be optional.
“Our proposal has many similarities to others being discussed on Capitol Hill,” said Parks. “However, the primary difference is that we view this as an interim market stabilizing measure — not a permanent government bureaucracy — to steady the market and allow ample time for the entire industry to work together on a comprehensive solution for all uninsurable risks.”