The National Association of Mutual Insurance Companies (NAMIC) submitted comments this week to the Department of Treasury on the first round of interim final regulations of the Terrorism Risk Insurance Act (TRIA).
The predominant question surrounding implementation of TRIA for NAMIC members is whether the insurance for farms written by county, farm and township mutuals is included in the program. NAMIC’s membership includes hundreds of farm mutual insurance companies.
“The comments presented by NAMIC focus largely on the TRIA compliance challenges faced by the farm mutual insurance industry,” said Monte Ward, NAMIC’s federal affairs vice president.
“The farm mutual tradition is well over 100 years old. While some have gone on to become large insurance companies, others have chosen to remain small,” said Ward. “Because they have remained small, and contained their businesses to single state operations, the laws and regulations that govern them are not uniform. As a result, creating national standards to govern their compliance with TRIA is somewhat more challenging for this sector of the insurance industry than it might be for others,” said Ward.
TRIA only specifies that commercial insurance is included and specifically excludes certain lines such as crop and medical malpractice insurance. In interim guidance issued in December 2002, the Treasury said that certain lines reported on Statutory Page 14 of the Yellow Book are included. Among those listed are:
Line 1 – Fire;
Line 2.1 – Allied Lines; and
Line 3 – Farmowners Multiple Peril
This creates confusion for farm mutuals because the farm policies they provide do not neatly fit into these categories; and, in many cases, they are considered personal lines, which Congress chose not to include in TRIA.
“While the Treasury has come a long way in clarifying the requirements for farm mutuals, much remains to be done. Farmers live where they work and their insurance products reflect that reality. Separating ‘personal’ from ‘commercial’ coverage will present a significant challenge. However, of greatest concern are limitations in several states that prevent insurers from retaining per-risk liability above a defined amount. Generally, these insurers comply with these statutory limitations by obtaining reinsurance for the risk above the defined amount. However, if a farm mutual facing this limitation cannot obtain reinsurance for terrorism risks, its deductible under TRIA will cause them to violate state retention limits. In those cases, TRIA will force these companies to choose between violating state or federal law. The interim final regulations don’t account for this problem, and we hope that the Treasury will reconsider its position on this point,” said Peter Bisbecos, NAMIC’s legislative and regulatory counsel.
NAMIC’s comments to the Treasury refer to the impact on small businesses, calculation of direct earned premium and the scope of commercial insurance. “Because our membership is so diverse, we fully appreciate the challenge faced by the Treasury Department,” said Ward. “Fashioning regulations to implement TRIA in such a short period, with no precedent to rely on, presents many extraordinary challenges. Our comments and suggestions are offered with this realty in mind,” stated Ward.
On Nov. 26, 2002, President Bush signed the Terrorism Risk Insurance Act (TRIA) into law, and it became Public Law No. 107-297. The TRIA is a two-year program, which may be extended for a third year if the Secretary of Treasury deems it necessary. It is designed to stabilize the commercial insurance and reinsurance markets in the wake of Sept. 11, 2001. Because TRIA is a temporary program, the U.S. Treasury Department and the National Association of Insurance Commissioners (NAIC) have been working to implement the new law in a short time period. Shortly after enactment, the NAIC issued a model guidance bulletin, and most states have issued their own bulletins.
To read NAMIC’s comments on Proposed Interim Rules in its entirety please refer to http://www.namic.org/pdf/TRIAComments2Treas.pdf