TRIA Should Set Captives Free
Should captives be permitted to opt-out of the Terrorism Risk Insurance Act? Indeed, should they be automatically excluded unless they seek permission to enter the federal terrorism reinsurance program?
These are two of the critical questions facing corporate buyers who have decided to "opt-out" of the traditional insurance industry to cover some of their own exposures.
Right now, confusion reigns, as it does with much of TRIA's implementation. When Congress passed the law, they pretty much left it up to the Treasury Department to figure out how it would work in the real world. Little or no thought was given to the differences between third-party coverage and self-insurance.
Captives–particularly those with single parents–are an entirely different breed of cat than traditional insurers. Buyers should have the right to decide which risks of their own to cover. That means they should at least be able to have their captives opt-out of TRIA. (The only exception should be workers' compensation, which by law must cover all work-related claims.)
If forced to meet TRIA mandates, the consequences could be grave. Domestic domiciles would be placed at an unfair disadvantage with those offshore because TRIA does not apply to foreign reinsurers. Others might be convinced to fold their captive or not form a new one to avoid unwanted terrorism exposure.
Such skewing of corporate risk-financing strategies would not do buyers any good–and helping buyers was a big reason why TRIA was passed in the first place. Buyers should keep the heat on Treasury until their captives are freed from TRIA.
Reproduced from National Underwriter Edition, March 10, 2003. Copyright 2003 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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