AIA, Alliance Draft Reinsurance Pool Proposals
Washington
Although there is no formal legislation, insurance groups are starting to draft proposals for creating a federal government reinsurance pool for terrorism risks, National Underwriter has learned.
The Washington-based American Insurance Association and Downers Grove, Ill.-based Alliance of American Insurers are floating similar, but separate proposals to create a reinsurance mechanism that would be funded by premiums paid by policyholders. The goal is to reestablish the availability of reinsurance for terrorism risks, which has dried up substantially since the Sept. 11 terrorist attack on the United States, the groups said.
According to an early version of the AIA draft, a terrorism reinsurance pool would be federally-chartered as a mutual insurer, governed by primary insurance company members and regulated solely by the Treasury Department.
The terms of terrorism coverage would have to be defined.
The pool would sell reinsurance to qualified primary insurers at actuarially-sound rates. It would cover all property-casualty lines. Retentions by primary insurers would be negotiated.
The pool would be authorized to purchase its own terrorism reinsurance from the federal government. The government reinsurance would be activated if pool surplus fell to less than 20 percent of the amount that existed the day prior to a terrorism event.
An individual insurer would be free to decide whether it wants to offer terrorism coverage to its policyholders.
National Underwriter did not have a draft of the Alliances plan, but Ann W. Spragens, general counsel and senior vice president, said the plan would not change any current terms of coverage. Rather, she said, the term "terrorism" would be defined.
Primary insurers would have access to the pool only if an appropriate government official, perhaps the Secretary of State, makes a determination that an act of terrorism has occurred, she said.
The pool would cover all lines of insurance, including life insurance. If exhausted, the federal government would then step in as the ultimate backstop.
A key issue that Alliance members are discussing is whether pool participation should be voluntary or mandatory, she said.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 1, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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