Webel TRIA

Question 1

Specific motivation for introduction of terrorism insurance in the US

Answer 1

• Fill unmet need: private insurers and reinsurers withdrew coverage after 9/11
• Convenience: government can set up a program quickly and can work with the Treasury Department regarding compensation
• Social purpose: lessen economic disruption from lack of terrorism insurance availability (new construction projects couldn’t get required insurance)

Question 2

TRIA legislation 3 specific goals

Answer 2

• Stabilize private market by providing temporary public/private terrorism insurance
• Protect consumers by ensuring AA (Availability & Affordability)
• Preserve state regulation of insurance

Question 3

How are TRIA goals met?

Answer 3

Stabilize the market
* TRIA created a government-backed loss-sharing mechanism

Protect consumers
* TRIA requires insurers to offer commercial coverage
* but insureds are not required to purchase
* insurers must provide transparency (disclose terrorism premium separately, and potential federal share of compensation)
* terrorism premium requires regulator approval (no specific premium limits however)

Preserve state regulation of insurance
* this is explicitly written into TRIA
* but with certain exceptions like: the state cannot enact its own definition of terrorism (otherwise they would create a lax definition to generate reimbursement)

Question 4

TRIA loss sharing criteria

Answer 4

Certification
* terrorist act must be certified
* certification is done by Secretary of the Treasury (SOT), in consultation with the Secretary of Homeland Security (SOHS) and Attorney General (AG)
* insurer losses must be >= $5m in the US (or to US air carriers or sea vessels)

Federal government threshold
* aggregate insurance industry losses >= $200m for federal assistance to begin

Coverage
* covers only commercial P&C

Deductibles
* insurer’s deductible = 20% of direct earned premium

Coinsurance
* insurer pays 20% of losses above deductible (federal government pays 80%)

Federal government limit
* no federal coverage for aggregate losses >= $100b
* insurers are not required to provide coverage beyond this limit

Surcharges
* SOT must establish surcharges to recoup 140% of federal outlay when aggregate losses are <= $37.5b
* for aggregate losses > $37.5b, SOT may establish surcharges but it is not mandatory

Question 5

Nonconventional terrorism attacks

Answer 5

NBCR = Nuclear / Biological / Chemical / Radiological

Covered by TRIA?
* not explicitly included or excluded, so should be covered
* but most primary policies covered by TRIA have exclusions for NBCR
* note that NBCR coverage has never been legally tested

Are cyber-terrorism events covered by TRIA?
* yes, but only 50% of standalone cyber insurance policies included terrorism

Question 6

Terrorism insurance programs in Spain, UK, Germany, Canada

Answer 6

• Spain: government-owned reinsurer that has provided coverage for catastrophes since 1954
• UK: privately owned mutual insurance company with government backing (Pool Re)
• Germany: private insurer with government backing
• Canada: considered, but rejected, creating a government program following 9/11

Question 7

Elements of insurable risk (4)

Answer 7

C-MAC
* Credible: need a large number of customers and events to make losses predictable
* Measurable: losses must be definite & measurable
* Accidental: losses must be fortuitous & accidental
* Catastrophic: losses must not be catastrophic