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NAIC urges rejection of some exclusions

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RENO, Nev.-The recommends that, in general, state insurance regulators reject insurers' filings for terrorism exclusions for group and individual life, and accident and health insurance products, according to a statement adopted at the group's recent spring meeting.

"It is the sense of the NAIC membership that terrorism exclusions are not necessary for individual life and health products and are generally not necessary to maintain a competitive market for group life and health products," the statement said. Such filings "also may violate state law," the statement said, although such laws "vary in their authority and discretion."

State regulators recognized, though, that "there may be unique company circumstances in the group market that need to be considered on a case-by-case basis. We expect the need for these exceptions to be limited," said the statement, which was adopted at the March 16-19 meeting in Reno, Nevada.

The NAIC statement then urged insurers and governmental entities "to explore private and public pooling mechanisms in the group market and all other available alternatives to mitigate problems that arise from concentration of risk."

Previously, the NAIC issued a similar rejection of terrorism exclusions for personal lines filings, though it endorsed such exclusions for commercial lines risks (BI, Jan. 7). Subsequently, most states have permitted insurers to include such exclusions in their commercial lines policies, although regulators in California, Florida, Georgia and New York have not.

In addition to dealing with insurers' exclusion requests, regulators addressed several other terrorism issues during the meeting.

During a symposium attended by more than 200 people, "there was general consensus that terrorist acts have been elevated from an insurable risk to a risk that is better borne by society as a whole," because their frequency and severity are unpredictable, according to an NAIC symposium summary.

In particular, insurer representatives expressed their concern about the potential financial burden created by their statutory liability in many states for fires that might follow terrorist attacks, despite the use of such exclusions (BI, Feb. 11).

Insurers also are concerned about their statutory liability to provide workers compensation coverage for employers, many of which are turning to state-mandated residual markets for coverage.

According to the symposium summary, "There is general agreement that a federal solution is necessary and would greatly improve the condition of the marketplace." Two bills that would establish a federal backstop program are currently stalled in Congress, though.

Several insurance industry representatives urged state insurance commissioners to contact their respective state and federal lawmakers and encourage them to support a federal backstop program.

Symposium speakers also considered other alternatives, including the establishment of a state or federal pooling mechanism, the creation of a tax-deferred catastrophe reserve and the solicitation of funding assistance from capital markets.

In other action at the meeting, commissioners:

c Heard a representative of the National Council on Compensation Insurance report on state regulators' responses to two recent filings.

So far, about two-thirds of state regulators have approved a filing that would eliminate the use of Sept. 11-related losses in the calculation of an employer's experience rating modifier, which is a component in determining its future premiums. The losses related to the terrorist attacks are not considered predictive of an employer's future losses, an NCCI spokeswoman said.

No state regulators have accepted the NCCI's filing for a 4% "catastrophe loading," though. Many state regulators have questioned the filing for being made "across the board"-in numerous states-as well as being applied to outstanding policies, according to NCCI representatives.

c Heard a representative of the Self-Insurance Institute of America express concerns about the lack of uniformity among states in the regulation of employers that self-insure their workers compensation liability. The NAIC's Workers Compensation Task Force forwarded his concerns to a joint working group that includes representatives of the International Assn. of Industrial Accident Boards & Commissions.

c Gave subgroup approval to a recommendation that individual state laws determine the degree of public access consumers would have to insurer-specific data.

c Presented Nevada's Insurance Department with a first-round accreditation award and presented Iowa's department with a third-round award.

c Recognized Alaska and New Hampshire for successfully implementing all 12 technology-based initiatives in the NAIC's Uniform Regulation Through Technology program.