NAIC Votes Against Terror Exclusions In Personal Lines

However, the motion left it to the individual state regulators to exercise their discretion in deciding "unique company circumstances."

Ms. Vaughan also reported that NAIC members believe that reinsurance remains available for personal lines and that "catastrophe exposure in personal lines is not as great as in commercial lines" due to a "greater spread of risk."

Robert Zeman, vice president and assistant general counsel of the National Association of Independent Insurers, headquartered in Des Plaines, Ill., said that his group was "disappointed with the NAIC's presumption that personal lines insurers do not face the same problem that commercial lines insurers do."

Mr. Zeman said that the NAII had submitted commentary letters to the Kansas City, Mo.-based NAIC from member property-casualty insurers about problems they were having with reinsurance.

On the other hand, the NAII commended the NAIC for allowing regulators some leeway in evaluating on a case-by-case basis insurer requests for terrorism exclusions, Mr. Zeman stated.

That sentiment was echoed by David Snyder, assistant general counsel for the American Insurance Association in Washington, who said that the NAIC had "sent a clear signal that, where circumstances warrant, exclusions will be considered [by individual regulators], and that seems to us to be a reasonable approach under the circumstances."

He explained that the evidence in front of the NAIC apparently did not indicate that the issues relating to terrorism exclusions were as clearly defined or as broad-based as they were for commercial lines.

Still, Rita Nowak, vice president of the Alliance of American Insurers, based in Downers Grove, Ill., said that the Alliance was "extremely disappointed" by the NAIC's vote. She explained that personal-lines insurers, like commercial-lines insurers, "need these exclusions to protect solvency–without them they are missing a very critical tool from an underwriting perspective."

The NAIC's "lack of affirmative action" on this issue "brings home the need for a federal backstop program," Ms. Nowak observed.

She also said she is "not optimistic" that individual states will be approving the exclusion in personal-lines policies.

Indeed, less than 24 hours after the NAIC vote, Georgia Insurance Commissioner John Oxendine declared that to protect consumers, he was denying a request by the Insurance Services Office to recognize terrorism as an excluded act in homeowners policies.

"The challenge currently faced by all insurers is a lack of experience in assessing future terrorism losses," according to Roger Schmelzer, regulatory affairs vice president of the National Association of Mutual Insurance Companies, based in Indianapolis.

"These unquantifiable losses pose a serious risk to the solvency of personal lines insurers," he said, adding that terrorism exclusions "should be available to any insurers" concerned about the adverse effect that such risks could have on their policyholders.

With the lack of a federal backstop, Mr. Schmelzer said, "allowing reasonable exclusions for acts of terrorism is critically important for the continued health of the personal lines industry and for the millions of policyholders who depend on its products."

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, February 4, 2002. Copyright 2002 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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