The Property Casualty Insurers Association of America and the American Insurance Association are voicing concern to the Treasury Department about its plan for making payments to and getting funds from insurers following a terrorism incident.

PCI is asking Treasury to rethink how it deals with "long-tail" claims, suggesting that a perception that all claims could be resolved within 10 years may be too optimistic.

Likewise, AIA opposes the timeframe Treasury proposed to cut off payments for a particular event, called the "final netting date." The cutoff should be no earlier than 10 years, AIA said in a letter that was signed by J. Stephen Zielezienski, senior vice president and general counsel.

The groups responded to a Treasury request for comments on how Treasury would reimburse insurers for a loss from a terrorism attack and, conversely, collect funds it is due under the law, the Terrorism Risk Insurance Act. The comment period closed Oct. 4. Treasury received 11 comments on the proposal.

In a letter signed by David Golden, PCI senior director of commercial lines, PCI said: "We are concerned that Treasury is in some ways attempting to create a 'one-size-fits-all' procedure that may not be appropriate for all insurers in every circumstance."

"In crafting the final netting rule, great care must be taken to ensure that the TRIA program responds equally well for the small insurer with risks heavily concentrated in the area of a terrorism incident, the midsize insurer with a concentration of business in the affected area, and the large insurer exposed through many national account customers with locations in the area attacked," the letter continued.

"TRIA must also work as well for general liability and workers' compensation as it does for property coverage," Mr. Golden added.

Regarding "long tails," the PCI letter noted that the proposed rule sets no fixed time period for which a program year will be left open before a final netting date is established, but that Treasury indicates it would likely be five-to-seven years following a qualifying terrorism incident, with a likely maximum of 10 years.

"PCI supports Treasury's proposal that the final rule should set no fixed time period for which a program year should be left open," Mr. Golden said in the letter.

However, he cautioned that Treasury's projection of a likely maximum of 10 years "may not always be sufficient."

"While property claims may lend themselves to closing in the five-to-10-year timeframe,…liability and workers' compensation claims may take longer, perhaps exceeding 15 years in some circumstances," the letter states.

Mr. Zielezienski said Treasury must consider the lines of business where losses occur to avoid putting companies with a large proportion of long-tail claims at a disadvantage.

The AIA also took issue with a proposed Treasury rule on workers' compensation, which states that an "insurer may provide updated information based on the number of workers' compensation claimants previously reported," but that an insurer may not report any "increased workers' compensation loss amounts based on an increase in workers' compensation claimants."

The AIA said, "This prohibition is particularly troublesome as injuries to workers' compensation claimants are often latent in nature and do not manifest themselves until later in life."

Mr. Zielezienski suggested that Treasury provide an additional public comment period.

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Industry Groups Criticize Treasury's Terror Pay Rules

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