The National Association of Insurance Commissioners (NAIC) announced that it has adopted a formal resolution urging Congress to adopt a two-year extension of the Terrorism Risk Insurance Act (TRIA). The resolution, adopted by state insurance regulators at their Summer National Meeting in San Francisco last week, states that the extension is necessary in order to avoid market uncertainty and economic instability.
“We simply don’t believe that the marketplace is currently prepared to take on the entire risk of providing coverage for major acts of terrorism,” said Ernst Csiszar, NAIC president and director of insurance in South Carolina. “A short-term, two-year extension of the TRIA program should give the industry the appropriate financial back up it needs in order to avoid negative economic consequences and instability.”
Immediately following the NAIC Summer National Meeting last week, the U.S. Treasury Department announced that it will extend the “make available” provision of TRIA through 2005, which requires insurers to make terrorism coverage available. That decision was openly supported by NAIC, which testified in favor of such action before the Senate Banking Committee on May 18, 2004. The next step toward continued stability, strengthened capacity and consumer protection, said the NAIC resolution, is for Congress to pass legislation extending the entire TRIA program to the end of 2007.
“The U.S. economy remains vulnerable in the event of a terrorist attack, and that is a challenge that the extension of TRIA will help address,” said Donna Lee Williams, Delaware Insurance Commissioner and chair of the NAIC’s Terrorism Insurance Implementation Working Group. “We have received contingent filings from insurers that indicate that coverage limitations that were in effect prior to TRIA would be reinstated, should Congress not act to extend TRIA. Congress needs to act on this, and we hope the NAIC resolution will urge them to do so.”
Williams added that state regulators are concerned that significant market disruptions will develop before TRIA’s expiration because some terrorism risks are largely uninsurable without a financial backstop. This, she said, is due in large part to the deadlines contained in TRIA, which currently do not match the business cycle for insurance renewals.
There are two major types of insurance that cause insurers special concern should the federal backstop expire. Those are workers’ compensation and group life coverage. Both are vulnerable to risk concentration problems in the event of a large terrorist attack. However, unlike workers’ comp, there is no statutory requirement for group life that prohibits an insurer from limiting available coverage for acts of terrorism in some fashion and there is not sufficient group life reinsurance to cover a catastrophic terrorism loss situation.
“While the NAIC has not taken a formal position on whether group life should be included in TRIA or another form of federal backstop, I believe that, if asked, most regulators would tell you it should be included in an extension,” Williams noted.
“The NAIC stands ready to assist Congress in developing an appropriate method for continuing the federal terrorism reinsurance backstop,” she said.
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