Delay Sought In NBCR Mandate

WASHINGTON–Trade groups representing smaller insurers are asking Congress to delay a decision whether to mandate coverage of a nuclear, biological, chemical and radiological attack in any legislation extending the Terrorism Risk Insurance Act.

The letter calls for careful study and analysis by a commission of how NBCR risk should be handled, rather than a “premature and counterproductive mandate to provide NBCR coverage now.”

The issue is important because the current version of TRIA expires Dec. 31 and its extension is a top priority of all insurers.

The House Financial Services Committee is expected to unveil by mid-June draft legislation addressing the extension issue that includes provisions dealing with NBCR coverage.

The proposal by the groups representing smaller insurers doesn't appear to resolve a conflict they have with the American Insurance Association, which has joined with the Coalition To Insure Against Terrorism, which represents policyholders.

The AIA/CIAT proposal includes a provision calling for all property insurers to sell insurance for such attacks, the so-called “make available” provision, but would have the federal government step in to cover losses above a certain amount.

The letter was sent by the National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America to Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, and Rep. Barney Frank, D-Mass., chairman of the House Financial Services Committee.

The NAMIC/PCI position is that Congress should enact legislation extending TRIA that requires the government to absorb all of the cost of a loss stemming from a NBCR attack.

Dennis Kelly, a spokesman for the AIA, said the group “remains focused on continuing discussions with Congress on a workable NBCR solution in which the government would assume all the risk above an insurer deductible.”

He added that the AIA is also working “closely with the policyholders and other trade groups interested in developing a solution that meets all parties' needs.”

The smaller insurers contend that private insurers should not be required to offer coverage for terrorism attacks generated by NBCR, the letter said.

The letter explains that small and medium-sized insurers would “undoubtedly face significant challenges from an NBCR requirement,” since they would probably have to assume a risk and an operational exposure of great danger and complexity for which they have no previous insuring or claim adjustment experience.

Operational issues such as the accuracy of catastrophe loss models for property and liability terrorism risk, regulatory controls on insurer pricing, and issues arising from possible mixed attacks involving both NBCR and non-NBCR exposures have not yet been addressed the letter said.

Requiring insurers to offer NBCR coverage would likely result in immediate rate hikes for policyholders, the letter said.

“At the outset, insurers would need to quickly raise large amounts of capital to cover an utterly unpredictable risk whose potential loss costs are staggeringly high and variable–somewhere between $27.3 billion and $778.1 billion, according to projections by the American Academy of Actuaries.”

The letter added, “… Since 9/11, private capital markets have demonstrated no willingness to securitize this type of risk. That leaves rate increases on existing policyholders as the only source of the needed capital. Moreover, since there is no way to predict when the capital will be needed, the only reasonable approach would be to raise all of the required additional capital immediately.”