B - Webel 1 and 2 (TRIA) Flashcards
WEBEL I - TERRORISM RISK INSURANCE ACT
Context that led to creation of TRIA
- Before 9/11, terrorism coverage was included in general insurance policies without costs.
- Following 9/11, the coverage became very expensive, if available.
- TRIA was created by Congress in response to the fear that the absence of commercial insurance would affect the economy.
WEBEL I - TERRORISM RISK INSURANCE ACT
Contrast how SMALL, MEDIUM and LARGE losses are shared between govt and private insurers in TRIA program.
SMALL : private insurers cover all.
MEDIUM : government spread the loss over time and over entire industry.
LARGE : govt covers most of the losses.
WEBEL I - TERRORISM RISK INSURANCE ACT
The 3 goals of TRIA
1) To create a temporary federal terrorism compensation program shared by public and private to allow the insurance market to stabilize
2) To allow availability and affordability of Terrorism Insurance
3) To preserve STATE regulation of insurance.
WEBEL I - TERRORISM RISK INSURANCE ACT
Define NCBR Terrorism.
The status of TRIA on NCBR incurred losses.
Nuclear, Chemical, Biological and Radiological Terrorism.
TRIA covers incurred terrorism losses regardless if it is NCBR. But there might be exclusions to limit TRIA’s coverage.
WEBEL I - TERRORISM RISK INSURANCE ACT
why terrorism is seen by many to be uninsurable.
There is a lack of public data about the frequency and severity of terrorism acts.
WEBEL I - TERRORISM RISK INSURANCE ACT
4 ideal elements of an insurable risk
For each, briefly comment on terrorism risk as an insurable risk.
1) Large number of insured:
FAIL
2) Loss must be DEFINITE and MEASURABLE
3) Loss must be FORTUITOUS and ACCIDENTAL
fail, terrorism is not accidental
4) loss must NOT be CATASTROPHIC
depends on concentration of risks for the insurer.
WEBEL I - TERRORISM RISK INSURANCE ACT
Stance of Canada on Terrorism insurance after 9/11.
Canada considered it but rejected creating a government program.
WEBEL I - TERRORISM RISK INSURANCE ACT
Who administers the TRIA Program
Secretary of the Treasury
Since the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, FIO was created, and has the duty to assist the Secretary in the administration of TRIA Program
WEBEL II - TERRORISM RISK INSURANCE ACT
3 requirements for TRIA Program to be triggered
Explain recoupment provisions
0) program extended until 2020
1) Terrorism act must be higher than 5M$ (no change)
2) Aggregate industry loss from one terrorism act must be ((100M$ in 2015, increasing by 20M per year until reaches 200M)) in a year for the govt coverage to begin
3) Individual insurer must meet a 20% deductible of its annual DPE for the government coverage to begin. Once ((100M$ in 2015, increasing by 20M per year until reaches 200M)) threshold and 20% deductible are passed, govt pays 80% (previously 85%), until loss totals 100 Billions.
Govt does not charge for the coverage. Instead,
for attacks below 27.5 billions (will increase to 37.5 billion, 2 billion per year), secretary must recoup 140% (previously 133%) of govt outlays through surcharges on insurance policies. Above that amount, secretary has discretion on whether recouping govt outlays.
