TRIA Claims Rules Finalized

By Steven Brostoff, Washington Editor

NU Online News Service, July 1, 3:51 p.m. EDT?Insurance companies will not have to face cash flow problems when paying terrorism-related claims under a new final rule issued by the Treasury Department, said Jeffrey S. Bragg, executive director of the Terrorism Risk Insurance Program.[@@]

"I am pleased to announce that Treasury has been able to devise a means by which advance federal payments may be made under certain circumstances, thus enabling a prompt response with appropriate financial controls in place," Mr. Bragg said in a statement.

The issue appears to resolve a concern among insurance companies that they could face substantial cash flow problems if they were required, in all cases following a terrorist attack, to pay claims prior to seeking reimbursement from Treasury for the federal government's 90 percent share of losses.

Under the new procedures adopted by Treasury, insurance companies can establish segregated accounts into which Treasury will make advance payments for claims that are to be paid within five days of receipt of the federal share.

Insurance companies will make their payments from the accounts and any interest earned on the accounts will be returned to Treasury.

Gary Karr, a representative of the Washington-based American Insurance Association, said AIA is pleased that Treasury addressed the issue of an advance payment mechanism.

Don Griffin, vice president of commercial lines for the Des Plaines, Ill.-based Property Casualty Insurers Association of America, added that PCI is pleased that Treasury responded to concerns raised by the industry, took industry suggestions to heart and made many changes in the final rule.

Peter Bisbecos, director of legal and regulatory affairs for the Indianapolis-based National Association of Mutual Insurance Companies, said that one of the most persistent concerns about any federal backstop's effectiveness has always been timely payments.

"Many companies have expressed concerns that they would be insolvent before the federal share reached them," he said.

NAMIC is pleased, Mr. Bisbecos added, that Treasury heard the concern and responded with the early payment mechanism.

However, both Mr. Karr and Mr. Griffin expressed concerns with one element of the final rule relating to a requirement that the federal share of terrorism-related claims be reduced by any amounts received by the policyholder from other federal sources.

Insurance companies argued that this creates problems because insurance policies generally do not allow for reductions in the amounts paid to claimants for amounts received from other sources, except other insurance policies.

In addition, insurance companies said it would be very difficult, if not impossible, for insurers to monitor and identify payments made to policyholders from other federal sources.

But Treasury said in the final regulation that it believes duplicate compensation situations will be rare.

This is because, Treasury said, the most likely federal programs identified by Treasury as potential sources of duplicate payments already have safeguards against it.

But Mr. Griffin said insurers are still concerned there are situations where they will have to pay out for losses that will not be reimbursed.

One other concern, Mr. Griffin said, is that there does not seem to be any information available on how Treasury would handle an event exceeding $100 billion in insured losses.

He noted that some models suggest the possibility of a $250 billion loss from a terrorist attack. This is an issue that needs to be addressed, Mr. Griffin said.

Under the Terrorism Risk Insurance Act, Treasury would pay its share of claims up to a $100 billion cap. If there is a loss exceeded that amount, Treasury would have to go back to Congress for guidance on what to do next.

The final rule on claims procedures under TRIA is published in the June 29, 2004, edition of the Federal Register.

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TRIA Claims Rules Finalized

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