CFA Urges States To Reject

ISOs Terrorism Exclusions

Washington

States should reject the conditional terrorism exclusionsrecently filed by the Insurance Services Office, the ConsumerFederation of America contends.

In a letter sent to all state insurance commissioners, J. RobertHunter, director of insurance for the Washington-based CFA, saidinsurers have not made a case for the exclusions. Moreover, hecharged, ISO and the insurance industry “appear to be playingpolitics with this request.”

He noted that Congress is now determining whether to renew theTerrorism Risk Insurance Act, which provides a federal reinsurancebackstop for commercial losses caused by acts of terrorism. Withoutan extension, TRIA will sunset on Dec. 31, 2005. “By requestingthese broad exclusions, ISO and the insurance industry areundoubtedly attempting to frighten Congress into renewing TRIA byraising the specter of absolutely no terrorism coverage if the lawexpires,” he said.

Christopher Guidette, assistant vice president of corporatecommunications with the Jersey City, N.J.-based ISO, responded thatthe requested conditional exclusions are “eminently responsible andnecessary.” For one, he said, the threat of terrorism is as strongtoday as ever, and there is a real risk that a catastrophic losscould exceed the ability of insurers to pay claims. Without abackstop, he said, insurers would have to reevaluate their abilityto cover terrorism.

Moreover, he said, the period when insurers will be writingpolicies that continue beyond TRIA's current sunset date is fastapproaching. He cited as an example a policy that takes effect onFeb. 28, 2005 and continues until Feb. 28, 2006. While terrorismcoverage would be in effect for most of the policy term, Mr.Guidette said, the insurer could be exposed for the last twomonths.

The conditional exclusion, he said, gives insurers the option ofnot covering terrorism if there is no federal backstop. He addedthat this is entirely contingent on TRIA expiring if TRIA isextended, the exclusion would not apply.

The conditional exclusions, he said, address the uncertainty inthe market while Congress considers TRIA extension.

However, in his letter, Mr. Hunter called the request“outrageous.” Whether or not TRIA is renewed, Congress willundoubtedly attempt to encourage private sector coverage, he said.“This preemptive exclusion would thwart such public policydecisions, even before they are made and analyzed by theregulators,” he said. “This, in turn, makes limiting taxpayerliability under TRIA much more difficult.”

The conditional exclusions proposed by ISO would give insurersthe option to exclude all losses resulting from acts of terrorism;exclude losses resulting from nuclear, biological or chemicalterrorism; or cover terrorism losses for an amount less than thefull policy limit. The exclusions would take effect if TRIA expiresor if it is extended but increases insurers' share of losses fromterrorist attacks.

Reproduced from National Underwriter Edition, May 28, 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.