TRIA Claim Rule Questioned

Washington

The U.S. Treasury Department should reword a proposed rule onclaims payments under the Terrorism Risk Insurance Program to helpassure that no one will take unfair advantage of the system, theProperty-Casualty Insurance Association of America contends.

In comments filed with Treasury, PCI said that the way theproposed rule is worded, it is possible that the system could bemanipulated so that an insurer could fail, thus putting the burdenfor payment of losses into the guaranty fund system.

The issue involves a provision in the proposed rule involvingpayments made by the federal government to an affiliated group ofinsurers that files a claim under TRIP. The rule calls for thegovernment to make a single payment of the federal share to asingle insurance entity representing the group, and it is then theresponsibility of the single insurance entity to distribute thepayments as appropriate to affiliated insurers.

Donald Griffin, assistant vice president for business andpersonal lines with the Des Plaines, Ill.-based PCI, said theconcern is that if an affiliated company of a group is alreadyfailing, the insurer designed to distribute the federal sharecould, in theory, withhold it.

PCI, he said, believes that the rule should be revised to statethat the single insurance entity is required to distribute paymentsto affiliated insurers or to hold those funds in trust fordistribution to affiliated insurers. Mr. Griffin said it clearly isnot the intent of Treasury to allow manipulation of the system, butthe wording of the proposed rule is vague.

PCI is also urging Treasury to reconsider a provision in theproposed rule calling for a reduction in the federal share ofcompensation due an insurer by any amounts received by thepolicyholder or third party suffering a covered loss from any otherfederal program, including disaster relief. This, PCI said,presents serious contractual problems for insurers.

If an insurer pays the loss amount required under the contract,PCI said, and Treasury deducts any amounts paid directly to theinsured from its reimbursement to the insurer, the insurer suffersan unanticipated loss. “The amount of this reduction inreimbursement cannot be calculated prior to the event and, as such,a premium cannot be developed or collected for it,” PCI said. “Thisis not how the program, or a typical reinsurance contract,works.”

PCI said that the rule should be revised to eliminate thisproblem.

PCI is the new association formed by the merger of the NationalAssociation of Independent Insurers and the Alliance of AmericanInsurers. NAII filed the comments to Treasury prior to themerger.

Reproduced from National Underwriter Edition, January 16, 2004.Copyright 2004 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.