Terrorism
Risk Insurance Act
by Bernard Blaschak, E&O Underwriting Manager
The long awaited Terrorism Risk Insurance Act has finally been signed into law (effective 11/26/2002). Your Commercial Lines clients may now be provided terrorism coverage if they so desire. With the passage of the bill into law more requirements are now being placed on insurance companies, but the burden of explaining the intricacies of the law to the insurance-buying public rests on the shoulders of the insurance agent.
The law includes a number of important definitions. Here are a few:
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Insurer - All U.S. insurers, both licensed carriers admitted in any state and non-admitted carriers that are included on the NAIC's eligible Surplus Lines Carriers List (please note this definition is still being clarified by the Treasury Department). Certified Loss - is committed by an individual or individuals acting on behalf of any foreign person or foreign interest, as part of an effort to coerce the civilian populations of the United States (9/11 would be an example of a Certified Loss). Non-Certified Loss - does not involve a foreign person or foreign interest (the Oklahoma bombing would be an example of a Non-Certified Loss). |
Any terrorism exclusion attached to a commercial lines policy in effect at the time of the signing (11/26/2002) became void. It is important for your commercial lines clients to know that the law applies only to Certified Losses; the exclusion would still apply to Non-Certified losses.
Within 90 days of the enactment of the law, insurance companies are required to send policyholder notices (AKA disclosure notice) to all in-force policyholders. The notices must specify what the premium charge will be to provide terrorism coverage for a Certified Loss and that the insurance company will be compensated for a portion of the Certified Loss.
It is all well and good that the insurance companies will be sending these policyholder notices to all of your in-force commercial lines clients, but you as the agent will have to explain to these clients just what the notices are all about and that the client has a limited amount of time to respond to the notice, and also has a limited time period to pay for the terrorism coverage if it is desired. It should be noted here that there are a limited number of states that think a return premium would be in order, due to the federal backstop, if your commercial lines client decides to opt out of the terrorism coverage. That issue has not been resolved as of the writing of this article (12/11/02).
Your follow-up with your commercial lines client becomes paramount after they receive these notices. More than likely many of them won't understand what is being asked of them, some may even consider a piece of mail from an insurance company as "junk mail" and just toss it in the recycling basket. Your insight will be considered very important to many of your commercial lines clients.
It needs to be impressed upon the client that they must act within a limited time frame (30 days) if terrorism coverage is desired. I think it's safe to say that no insurance company is going to want to backdate terrorism coverage because your client was tardy in their response or payment.
Procedures for new and renewal business are a little different than the 90-day window for the in-force business but your involvement in explaining the issues remains critical. After the 90-day mark the insurance companies "MUST" make a clear disclosure on all commercial lines renewal -- on a separate line -- as to the cost to purchase terrorism coverage. Your intervention on these renewals is important because, again, it may not be clear to the client what exactly is being offered, and without your guidance, a key coverage may be overlooked. New business procedures as stipulated by the law are similar to renewal in that the insurance company must provide, via a separate line, the cost to provide terrorism coverage. You will more than likely need to explain this line since it is new and the client may need some help in understanding what is being offered and why it is being presented in the way that it is.
One final note of caution. As of the writing of this article
this bill is in its infancy. Further clarification and guidance will be
provided by the U.S.
Treasury Department, the NAIC, the Alliance of American Insurers and
other similar industry and agent groups. It is
important that you keep abreast of the changes in the implementation of
the law as it evolves, so that you will be able to update your commercial
lines clients and they will then be able to make a fully informed decision
about this important coverage.
Communiqué is published for our agent-customers for informational purposes only and is not intended to be, nor should it be relied upon as legal advice. Legal questions should be directed to your legal advisor.