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BOSTON — The Terrorism Risk Insurance Program has generally been effective in making terrorism insurance affordable, and the move to a joint data call for collecting terrorism risk information has effectively reduced the reporting burdens for most property/casualty and workers compensation insurers participating in the program, according to an official with the Federal Insurance Office.
The data call was required under Section 111 of the Terrorism Risk Insurance Program Reauthorization Act of 2015, which directs the U.S. Department of the Treasury to collect data on the terrorism risk insurance market and report its findings to Congress. The data call is expected to be used by Congress to evaluate the program and determine if it is meeting stated goals and objectives in an effective and efficient manner. The 2017 and 2018 TRIP data calls were mandatory for participating insurers, subject to an exception for small insurers that wrote less than $10 million in TRIP-eligible lines premiums in each reporting year, respectively.
FIO worked with state regulators, the National Association of Insurance Commissioners and industry stakeholders to address the “substantive and technical issues presented by a single data call,” Richard Ifft, FIO’s senior regulatory policy analyst, told state regulators at the NAIC’s summer meeting in Boston on Sunday. “Thus a significant component of the 2018 data call was that Treasury and state insurance regulators coordinated in the collection of data, which has permitted participating insurers for the most part to provide a single data set to both Treasury … and state regulators. This approach worked well in its first year of operation, and Treasury is currently working with state regulators and the NAIC on ways the process can be further improved and streamlined for purposes of future data calls. It is Treasury’s understanding based upon comments from stakeholders and extensive interaction with reporting insurers that this approach has in fact reduced burdens on industry overall.”
FIO published a required report on June 29 that evaluated the overall effectiveness of the program, changes or trends in the collected data, whether any aspects of the program have the effect of discouraging or impeding insurers from providing commercial property/casualty insurance coverage or coverage for acts of terrorism, the impact of the program on workers comp insurers and an estimate of the total amount of premiums earned on terrorism risk insurance since Jan. 1, 2003.
“The program has generally been effective in making terrorism risk insurance available and affordable in the insurance marketplace,” Mr. Ifft said. “During the time the program has been in effect, private reinsurance capacity for terrorism risk that is not backstopped by the program has increased substantially. That increase, however, is not observed in connection with losses arising from nuclear, biological, chemical or radiological risks.”
The 2016 and 2017 collected data “indicates that the market for terrorism risk insurance has been relatively stable over this two-year period, with few observable differences in relevant benchmarks such as price and takeup rate,” he continued. “Treasury has not observed any aspects of the program … that have had the effect of discouraging or impeding insurers from providing property/casualty insurance in general or coverage for acts of terrorism specifically.”
The program “serves as an important backstop to workers compensation” given that comp must cover terrorism risk under state law, is not subject to limits of liability, and cannot exclude causes of loss posing extreme aggregation risks, Mr. Ifft said.
Treasury’s estimate of total earned premiums for terrorism risk insurance from 2003 to 2017 is about $37.6 billion, or $45 billion including captive insurers, which are analyzed separately, which is between 1% to 2% of the total premiums earned in the TRIP-eligible lines of insurance, according to the report.
The FIO will produce a report next year on the competitiveness of small insurers in the terrorism risk insurance marketplace and will issue another report on the effectiveness of the program in 2020, he said.
Many captives will likely have to respond to the U.S. Treasury Department’s first mandatory terrorism data call by the May 15th deadline, but should have little trouble doing so, according to a briefing by A.M. Best Co.