NAII Praising Senate for Including Risk-Sharing Mechanisms in Terrorism Reinsurance Bill

November 22, 2002

The Senate’s recent approval of H.R. 3210, the Terrorism Risk Insurance Act of 2002, puts the bill on the desk of President Bush, who is expected to sign the legislation Dec. 2.

The new legislation creates a high-level federal backstop for losses related to foreign acts of terrorism and creates new obligations for insurers writing commercial policies, including mandatory offer of terrorism coverage, policyholder notice and disclosures, and submission of premium information. The National Association of Insurance Commissioners (NAIC) is currently developing a model bulletin relating to insurer obligations under the new legislation.

“NAII commends Senate Banking Committee Chairman Paul Sarbanes and Subcommittee Chairman Chris Dodd for the long awaited passage of a terrorism reinsurance backstop,” Carl Parks, senior vice president, government relations for the National Association of Independent Insurers (NAII), said. “We are pleased that the short-term federal program will include NAII supported provisions addressing workers’ compensation, business interruption, per-company retention levels, and cross-subsidization. Overall, these provisions will contribute to an insurance market with true risk-sharing mechanisms in the short run.”

NAII supported issues include:

Short-term nature of program – The program allows market stabilization with the least amount of federal bureaucracy.

Workers’ Compensation – The bill features full inclusion of workers’
compensation coverage, including coverage for war risks. Workers’
compensation lines were severely impacted by the events of 9-11, and it was imperative that full coverage be provided for workers’ compensation losses.

Business Interruption – The federal backstop provides coverage for full business interruption losses.

Per-company retention level – This provision protects the solvency of small and mid-size insurers. The vast majority of insurers write less than $100 million in coverage.

Cross-subsidization – The conference report includes NAII supported
language limiting cross-subsidization by requiring the Secretary of the
Treasury to consider the impact on business, type of risk, etc. when imposing policyholder surcharges to recoup the federal share.

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