N.Y. Terror Insurance Rules Spark Controversy

By Caroline McDonald

NU Online News Service, March 24, 4:02 p.m. EST?New York's insurance department has put rules in place allowing commercial customers to change or cancel their terrorism coverage without penalty.

The department's action at the end of last week came after New York Insurance Superintendent Gregory V. Serio strongly criticized some industry segments for not doing an adequate job of providing terrorism coverage.

Meanwhile, the department's action was termed a "troublesome" development today by a national insurers trade group.

New York's new amendments, which are unique to the state, prohibit insurers from issuing terrorism insurance policies containing provisions that penalize businesses by charging for full policy term premium upon cancellation prior to policy expiration, the department said.

Mr. Serio told risk managers at the Risk and Insurance Management Society Inc. New York Chapter monthly meeting last Thursday that the amendment, which at that point had not been formally released, is "a response from the public saying, 'We're in the midst of the maelstrom of rates. Rates are changing day-to-day, carriers are saying they are going to wait to see how this shakes out, and I can't wait.'"

Why should buyers "get locked into that economic penalty?" he asked. "It doesn't do anything for the businesses of New York and you're not really taking anything away from the carriers."

Mr. Serio said at the RIMS meeting that, "Congress did the right thing, and we did the right thing asking for TRIA."

He added, "The people complaining about the shortcomings of TRIA are the [carriers] not willing to participate in TRIA to the fullest extent. Where are the carriers? They are nowhere. They won't pool the deductibles, they won't do risk sharing, they tell us it has limitations because it's only three years."

His department said later, in an announcement, that the practice of collecting unearned premiums unjustly enriches insurers and is contrary to the Terrorism Risk Insurance Act (TRIA) goal of making coverage more affordable,

Treating premiums as fully earned upon policy issuance violates fundamental insurance premium recognition rules, which generally provide that a policy premium is earned evenly over the entire policy period, according to the department.

But Rita Nowak, assistant vice president for the Alliance of American Insurers in Downers Grove, Ill, said the amendments?the sixth amendment to Regulation 57 and the 8th Amendment to Regulation 41?are "troubling" because they "change the existing rules that insurers have always operated under."

Though insureds have reported that terrorism rates can vary wildly from one insurer to another, Ms. Nowak said she doesn't see New York's amendments as "a factor that will bring standardization of rating approaches" because so many variables exist "on the insurer side and insured side."

Another factor, she explained, is the importance of relationships between the insurer and the insured. "Whether insureds will separate terrorism coverage and move [the coverage] is questionable," she said. "I don't know if this would entice them to move their insurance mid-term."

The insurer community, the department said, is greatly aided by the federal backstop for terrorism losses through TRIA. The benefit of affordable and available insurance coverage for acts of terrorism should be provided to the insurance consumers for whom TRIA was designed.

The department said the amendments "prohibit the continuation of the inequitable practice of treating premiums as fully earned upon policy issuance, which results in an excessive rate in violation of the rating principles embodied in Article 23 of the Insurance Law."

The amendments are applicable to authorized insurers and policies placed by an excess lines broker in the excess lines markets, the department said.

The amendments can be viewed on the department's Web site at www.ins.state.ny.us.

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N.Y. Terror Insurance Rules Spark Controversy

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