ISO Files Terrorism Policy Language
NU Online News Service, May 3, 12:39 p.m. EDT?The Insurance Services Office, Inc. said it has asked state regulators to approve commercial policy contract language covering terrorist acts if Congress fails to extend the federal terrorism insurance backstop beyond 2005.[@@]
The Jersey City, N.J.-based subscription products-services-information group said the optional endorsement language it filed will help insurers and policyholders manage potential coverage problems posed by the potential Dec. 31, 2005, "hard ending" of the Terrorism Risk Insurance Act program.
ISO said the policy language would provide "critical tools needed now to make underwriting decisions on terrorism coverage in an uncertain post-TRIA environment."
TRIA was passed in 2002 in the aftermath of the Sept. 11, 2001 attack on the World Trade Center and the Pentagon. It provides federal financial backing for insurance losses resulting from events certified by the secretary of the U.S. Treasury as "acts of terrorism."
ISO noted that as early as this September, insurers will begin taking action on policies with effective dates of Jan. 1, 2005, and later. These policies, some of which include terrorism coverage, have terms that extend beyond Dec. 31, 2005?when the federal backstop may no longer exist, ISO said.
The disappearance of a federal terrorism insurance backstop, ISO said, will cause insurers to reevaluate their ability to cover terrorism.
ISO filed the conditional endorsements under its commercial lines programs for regulatory approval in all jurisdictions. The endorsements provide participating ISO insurers several options including:
? A total exclusion of losses from acts of terrorism.
? An exclusion for losses resulting from acts involving nuclear, biological or chemical terrorism.
? A means to cover terrorism losses not otherwise excluded up to a sub-limit (that is, a lesser amount than the full policy limit).
ISO said the optional, conditional endorsements will be available for use on policies with terms that extend beyond Dec. 31, 2005. If the federal backstop expires, the terms of the endorsements become applicable on Jan. 1, 2006, and would apply to any losses that occur on or after that date.
The endorsements will also take effect, ISO said, if the backstop is extended, but increases insurers' share of losses or risk of loss from terrorism events.
Condition endorsements are being filed now, ISO explained, to give insurers sufficient time to make any necessary changes in their operational systems.
TRIA requires insurance companies to "make available" terrorism coverage to all commercial property-casualty policyholders through Dec. 31, 2004. TRIA gives the Treasury Department discretion to determine whether the requirement should be extended through Dec. 31, 2005. Treasury must make this determination by Sept. 1.
In Congress, there have been demands that the Treasury extend the "make available" requirement. Eighteen members of the House Financial Services Committee, led by Chairman Mike Oxley, R-Ohio, have written Treasury Secretary John Snow urging him to extend the requirement.
"An extension will ensure that terrorism coverage is widely available while Treasury continues its good work and while private market solutions are still being developed," the letter said.
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