Insurance Services Office, Inc. (ISO) has filed with all state insurance regulators the commercial insurance policy forms carriers can use to sell terrorism coverage. The new ISO-developed forms contain standardized policy contract language for underwriting terrorism coverage in existing policies as well as new and renewal policies.
ISO filed the forms and developed rating information in response to the Terrorism Risk Insurance Act of 2002, signed by President George W. Bush Nov. 26. The law provides financial backing by the federal government for insurance losses certified by the Secretary of the Treasury as “acts of terrorism.”
The forms have been filed in two sets. The set of forms solely related to losses from certified acts of terrorism is being fast-tracked under a provision of the federal act that waives prior approval or other waiting periods otherwise applicable under state law. These forms are effective immediately. The other set of forms provides or excludes coverage for various acts of terrorism that fall outside the federal backstop law’s definition of terrorism. These forms will become effective in accordance with normal filing and approval procedures in each jurisdiction.
To be certified, an act of terrorism must result in more than $5 million in property and casualty losses, involve violence and property destruction and be perpetrated by someone acting on behalf of a foreign entity or interest.
With a federal backstop for up to $100 billion in insured losses, the federal program requires mandatory participation by commercial lines property and casualty insurers, and these insurers must make coverage available for certified acts of terrorism.
The new backstop law voids terrorism exclusions on in-force policies and state regulatory approvals for such exclusions to the extent that those exclusions apply to losses covered by the act. The law, however, permits insurers to reinstate preexisting terrorism exclusions for policyholders that decline terrorism coverage or do not pay any additional premium for terrorism coverage.
The ISO forms filings include accompanying rules – sets of conditions under which an insurer agrees to underwrite a particular type of risk at a specified rate in a specified territory.
ISO continues to develop rating information for the various terrorism coverage options. That information will incorporate analysis from the Terrorism Loss Estimation Model developed by AIR Worldwide Corporation. The rating information, to be filed later this month, will include:
*loss costs (projections of future claims) for commercial property policies,
*percentage surcharges for general liability policies, and
*a combination approach for businessowners polices.
ISO also developed sample disclosure notices insurers can use to meet the act’s requirement to disclose the premium for terrorism coverage and the federal government’s share of compensation for those losses. The disclosure notices do not require regulatory approval.
“We recognized insurers’ urgent need for the coverage and pricing tools to do the job of protecting many key business sectors affected by limited availability of terrorism coverage in the aftermath of September 11,” Frank Coyne, ISO’s chairman, president and CEO, said. “Insurers can now responsibly cover businesses most severely affected by the threat of terrorism, such as construction, real estate and related services.”
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