Alliance Pleased With New Treasury Department TRIA Regs

April 17, 2003

The Alliance of American Insurers reports it is pleased with the U.S. Treasury Department’s second set of regulations under the Terrorism Risk Insurance Act (TRIA) of 2002, which the department released April 15, as they are consistent with interim guidelines previously issued.

The newly-announced regulations address disclosure requirements, “make-available” requirements, and the participation of state residual market insurance entities and state workers compensation funds under TRIA. Insurers can submit their comments on the regulations during a month-long comment period.

“We continue to be favorably impressed with Treasury’s professionalism in moving forward quickly to implement the Terrorism Risk Insurance Program,” said Roger Kenney, Alliance associate vice president of research. “In particular, we commend Treasury Assistant Secretary for Financial Institutions Wayne A. Abernathy for his – and his staff’s – hard work.”

Treasury reportedly makes clear that on disclosure notices, insurers can use their own notices as long as they are clear and conspicuous. Treasury is not specifying exclusive forms or language. They will determine clear and conspicuous based on the totality of the facts and circumstances.

“This should provide insurers with confidence that as long as they are using normal business practices, they will be in compliance with TRIA,” continued Kenney.

Another point of clarification is on what constitutes a valid notice. Treasury indicates that notice will be satisfied even if after giving initial notice, if the insured refuses full coverage but accepts reduced coverage or a different premium for coverage, the initial notice will suffice as satisfying the notice requirement.

In terms of the record-keeping necessary to demonstrate compliance with the “make available” requirement, an insurer can use current record-keeping practices. Treasury is not proscribing any new record-keeping requirement.

These rules also reportedly clarify that if an insurer does not cover all types of risks, then it is not required to cover any excluded risks in the policy such as nuclear, biological, and chemical.

Treasury has clarified that state laws regarding coverage are not usurped by TRIA. States can refuse to allow exclusions for terrorism coverage and insurers cannot offer less than full coverage or coverage with exclusions.

The interim rules also reportedly provide clear instructions on how premium is to be accounted for by servicing carriers and other insurer participants in residual markets that share their profits and losses with insurers. An illustration as to how insurers that participate in state residual market insurance mechanisms should calculate their “direct earned premium” for purposes of calculating an “insurer deductible” was included, which should also help insurers.

“This had been an important outstanding issue with affected insurers and has now been resolved satisfactorily,” added Kenney.

A significant clarification was reportedly made for those situations where a policyholder has rejected terrorism coverage. An insurer is not required by TRIA to offer partial coverage if the policyholder declines full coverage (if allowed by applicable state law).

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