Webel Flashcards
What does TRIA stand for?
Terrorism Risk Insurance Act
What are TRIA’s goals?
1 - Create temporary federal program of shared public and private compensation for insured terrorism losses to allow private market to stabilize
2 - Protect consumers by ensuring availability and affordability of insurance for terrorism risks
3 - Preserve state regulation of insurance
Describe how terrorism-related losses are shared under TRIA
- Small loss, no federal sharing
- Medium-sized loss, federal role spreads loss over time and over entire insurance industry, providing assistance up front but recouping payments through later levy on insurance policies
- Large loss, federal government pays most of losses, although recoupment is possible in these circumstances
What is criteria is required to classify an act of terrorism under TRIA?
- Act of terrorism must be certified (Secretary of treasury, Secreatry of States and Attorney General) and loss > $5M
- Federal shares of certified act only if aggregated industry losses > $100M
- Covers only Commr PC insurance
- Insurer is responsible to pay its ded (prop to size) 20% direct EP for commr PC
- Once $100M loss threshold and 20% ded are passed, federal cover 85% (above ded) until loss reach $100B
- After $100B, no federal coverage and no requirement that insurers provide coverage
- Year following losses, but before September 30, 2017, Secretary of treasury must establish surcharge on PC policies to recoup 133% of some or all of the outlays to insurers. If losses are very high, he can assess surcharge but he is no required to do so
- Initial loss sharing (ded of 20% in aggregate, but depends on how losses are distributed among insurance cies)
Identify Consumer Protections under TRIA
- By requiring those insurers that offer the lines of insurance covered by TRIA to make terrorism insurance available prospectively to their commercial PH
- PH are not required to purchase coverage
What types of terrorist attacks might cause a large scale loss?
Nuclear, chemical, biological or radiological weapon-related. While NCBR attacks are not excluded, most are likely limited due to only insured losses being covered. Any exclusions in coverage extend to TRIA
List the events that occurred Post 9/11, but Pre-TRIA
- Insurers and Re included substantial surcharges for terrorism risk, or excluded coverage for terrorist attacks
- State approved this exclusion
- Raise fear of larger economic impact on real estate market
List the events that occurred after TRIA
- Initially, pricing was relatively high (a low % of clients bought this coverage)
- Price appeared to decline over time
- Willingness and financial capability has increased over the past decade
With respect to TRIA, briefly describe the roles of the federal government, state government, and private insurers
Federal government - Provide funds for losses in excess of set amounts of loss resulting from terrorist attacks
State government - Does not have a role other than regulating insurer as normal
Private insurer - Offer terrorism coverage, handle related claims, and pay losses up to attachment point
With respect to TRIA, briefly describe two reasons for government involvement
1 - Fill unmet needs. After 9/11, insurance cies were unwilling to provide terrorism coverage without the financial backing of the federal government
2 - Achieve collateral social purpose. Terrorism coverage encourages business continuation after terrorist attacks
Evaluate the program’s effectiveness
Effective because:
• Increased availability of coverage
• Provide coverage while allowing for time for insurers to build models, understand the risk and build capital for events
• High concentration areas continue to be insured
Provide Ideal elements of an insurable risk and for each element briefly comment on terrorism risk as an insurable risk
- Large number of insured to make losses reasonably predictable
- Definite and measurable
- Fortuitous and accidental
- Must not be CAT
Likely to fail 1, 3 and maybe 4 (if insurer does not limit their exposure concentration)
