N.Y. Terror Insurance Rules Spark Controversy New Yorks insurance department has put rules in place allowing commercial customers to change or cancel their terrorism coverage without penalty.
The departments action at the end of last week came after New York Insurance Superintendent Gregory V. Serio strongly criticized some industry segments for not doing an adequate job of providing terrorism coverage.
Meanwhile, the departments action has received mixed reactions, from "troublesome" to a non-issue by national insurer trade groups.
New Yorks new amendments, which are unique to the state, prohibit insurers from issuing terrorism insurance policies containing provisions that penalize businesses by charging for full policy term premium upon cancellation prior to policy expiration, the department said.
Mr. Serio told risk managers at the Risk and Insurance Management Society Inc. New York Chapter monthly meeting that the amendment, which at that point had not been formally released, is a response to "a maelstrom of rates."
Why should buyers "get locked into that economic penalty?" he asked.
He added, "The people complaining about the shortcomings of TRIA are the [carriers] not willing to participate in TRIA to the fullest extent. Where are the carriers? They are nowhere. They won't pool the deductibles, they won't do risk sharing, they tell us it has limitations because it's only three years."
His department said later, in an announcement, that the practice of collecting unearned premiums unjustly enriches insurers and is contrary to the Terrorism Risk Insurance Act (TRIA) goal of making coverage more affordable.
Treating premiums as fully earned upon policy issuance violates fundamental insurance premium recognition rules, which generally provide that a policy premium is earned evenly over the entire policy period, according to the department.
Rita Nowak, assistant vice president for the Alliance of American Insurers in Downers Grove, Ill, said the amendmentsthe sixth amendment to Regulation 57 and the eighth Amendment to Regulation 41are "troubling" because they "change the existing rules that insurers have always operated under."
Though insureds have reported that terrorism rates can vary wildly from one insurer to another, Ms. Nowak said she doesn't see New York's amendments as "a factor that will bring standardization of rating approaches" because so many variables exist "on the insurer side and the insured side."
Another factor, she explained, is the importance of relationships between the insurer and the insured. "Whether insureds will separate terrorism coverage and move [the coverage] is questionable," she said.
But Stef Zielezienski, assistant general counsel with the American Insurance Association in Washington, D.C., said the association has "had no adverse reaction so far" from member companies, which means that "as of right now there are no issues jumping off the page."
The department said the amendments "prohibit the continuation of the inequitable practice of treating premiums as fully earned upon policy issuance, which results in an excessive rate in violation of the rating principles embodied in Article 23 of the Insurance Law."
The amendments can be viewed on the department's Web site at www.ins.state.ny.us.
Reproduced from National Underwriter Edition, March 31, 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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