State regulators should work toward a long-term solution to the terrorism coverage problem to show that states can work on a national level, the Consumer Federation of America said.

In a letter to the heads of the National Association of Insurance Commissioners and the National Conference of Insurance Legislators, CFA Director of Insurance J. Robert Hunter said the two groups "have a great opportunity to show leadership and to prove to Congress that it need not move to substitute federal insurance regulation for state insurance regulation."

That opportunity, Mr. Hunter said, is the expiration of the Terrorism Risk Insurance Act in two years.

In December Congress passed a two-year extension to the program, which had been scheduled to end, with the idea that the added time would be used to find a long-term solution to terrorism insurance capacity that would limit financial support from the federal government.

"As you know, it is extremely unlikely that Congress will extend TRIA again after 2007," Mr. Hunter said in the letter. "Now is the perfect time for the states to put a system in place that makes the end of TRIA a minor event."

As states work on the issue, Mr. Hunter advised that they should aim to establish pools for spreading the risks of terrorism, increase the availability of reinsurance and provide other options for terrorism coverage such as alternative markets or privatization plans.

Additionally, he said states should work to ensure that existing insurance programs, such as workers' compensation pools, are kept in place and that rating systems and policy forms have been examined and approved.

"If NAIC, NCOIL and the states do not plan carefully and early, the potential for market upheaval is obviously much greater, not to mention unwarranted appeals by insurers for the last-minute renewal of TRIA," Mr. Hunter said.

Time is of the essence, Mr. Hunter advised, for states to show they can take the lead in resolving the terrorism insurance issue. The President's Working Group on Financial Markets is scheduled to release a report on the long-term availability and affordability of terrorism risk insurance by the end of September, and Mr. Hunter said the states should act first to show that they are on top of the issue.

"Waiting for the Working Group to report would cause the states to lose critical planning time," Mr. Hunter said in the letter. "Moreover, such a lengthy delay would make NAIC, NCOIL and the states appear as if they are 'asleep at the switch' in planning for such an important change."

Special Reports /

Consumers To States: Get A New TRIA Plan Now

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