National Association of Professional Insurance Agents

National Association of Professional Insurance Agents

400 North Washington Street, Alexandria, Virginia 22314

General Phone: 1-703-836-9340 and FAX: 1-703-836-1279

General E-mail: & website:

October, 2003

URGENT– TIME SENSITIVE

TO: PIA National & Affiliate Leadership

FROM:Pat Borowski

RE: For member consideration – Keep Alert for Insurers’ Next Round of TRIA

Summary:

On October 10, the U.S. Treasury Department announced two “final” regulations under the Terrorism Risk Insurance Act of 2002, which was signed into law by President Bush on November 26, 2002. One final regulation addresses the disclosure and “make available” requirements under the Terrorism Risk Insurance Act, and the other final regulation addresses the participation of state residual market insurance entities and state workers’ compensation funds under the Terrorism Risk Insurance Program.

Treasury said in the coming weeks it will be moving forward with the remainder of the process for implementing the Terrorism Risk Insurance Act, including regulations setting forth the procedures for submitting claims under the program.

Note: PIA will share this memo with carriers to guide them on some of the issues that are important to agents. We will also advise carriers of what information agents may be expecting to receive from them. We encourage and invite PIA members and affiliates to share this update with each of your carriers, as well. Please be sure to advise us what you receive as instructions from your carriers in this matter.

TRIA RULES Status: While more provisions of this federal law have been finalized in rules, a great deal remains to be accomplished. So while insurers are in an improved position to understand the ramifications of the TRIA obligations that they are taking on, they still do not yet have the full complement of final published rules to see all the critical pieces of their exposure/obligation exposures under TRIA.

TRIA & Reinsurers: Carriers are only now working out their 2004 reinsurance agreements. We’ve heard from those in the membership that work directly with these reinsurance provisions that many reinsurers are refining their underwriting and pricing requirements for TRIA, and reminding their insurer-clients that reinsurers are taking note of how much TRIA premium is collected to exposure. Also, reinsurers are pressing further on concentration ratios of their directs. Last, they have noted that property exposures in following-fire states must be considered and accommodated in reserving in addition to TRIA calculations.

TRIA Premiums: Few insureds opted in for TRIA coverage. Additionally, many that did opt-in had no charge, or a small charge, made for their TRIA option since many carriers weren’t sure what to do. As a result, individual carriers and the insurance sector as a whole have not collected enough premium to reasonably meet the first year TRIA imposed individual carrier deductibles, or industry retention percentages. As of 12-01-03 – both of these “ratios” increase as the second year of TRIA takes effect. In a P&C sector that continues to see surplus and capital pressures, this is a concern. Add to this recent reports at the September NAIC meetings that the industry has just blown through $50 billion of losses on September 11-related losses, there is concern.

What You Can Expect & Are Already Seeing Among Your Carriers:

PIA member agencies should NOT expect carriers to approach this next round of TRIA renewal endorsement or new business offers in the same way they did earlier.

Here is what to expect:

• More TRIA endorsements included as a part of coverage with no opt-out making it a take-it-or-leave-it basis. This is particularly true if it is a property exposure in a following-fire state that does not exclude TRIA events.
• You already know that WC is not an opt-out offer. Now add property coverages in following-fire states. Also, many carriers believe there are certain exposures where their coverage could apply regardless of the nature of the event (i.e. terrorism) that may be the reason for the loss.

E&O is a good example where the covered peril is the agent’s error or omission which could result in a coverage mistake directly related to terrorism insurance or loss. E&O covers this. So, the TRIA endorsement for E&O becomes, in effect, already included in the perils. However, the carrier will note the TRIA endorsement and some premium charge for that exposure as required by the TRIA law.

• Far fewer TRIA endorsements will come through with “0” or waived (in whole or in part) premiums. Carriers must and will start charging and accounting for those premiums and reserving for the exposure.

So, please AGAIN, review the following procedures, questions and clarifications with each of your carriers for each line offered and class of business.

Most particularly, require carries to advise you ahead of time if there are any specific insureds/exposures/classes that they cannot insure if the insured opts-in or opts-out for TRIA.

A carrier may be precluded by their reinsurance agreement from insuring, for example, property management firms for terrorism related exposures. Any carrier in this circumstance must advise you ahead of time. They cannot tell you after the insurer has directly sent out the TRIA notice or after you’ve processed the insured's opt-in and then the insurer tells you. We helped several members out of potential litigation because several carriers did that to them last time, and so late that no other market could be found.

Ask your insurers what their renewal notice process is for TRIA endorsements. Remind your carriers to please send you a list of what insureds are being mailed the renewal offer, when it is going out, a copy of it and the carrier’s instructions to you as to how to proceed.

DO NOT ASSUME that all carriers will handle the TRIA aspect as a regular and included part of their direct renewal process. Some may and for some policies or lines of business. Others may not.

Also, ask each carrier to review and update their TRIA new business process.

Please review and update your matrix process that PIA provided last time (a copy follows at the end of this memo). This is a process that has been vetted with E&O carriers. This is the process we’ve suggested that you consider for Y2K, mold and other issues where the nature of risk has been dramatically changed and there are no established, vetted industry-wide standards that you as independent agencies can look to and/or rely upon as legally accepted general professional guidance.

In such circumstances, each carrier must make their own decisions about coverage, meanings, pricing and practices that for at least a time will form unique patterns among your various carriers. Accordingly, carriers then MUST inform and guide their agencies by sharing clear instructions and supporting PIA members’ need to have the answers to insured-clients’ questions.

Please share your comments, experiences and questions. Thanks.

PIA Suggested Insurer-Coverage Matrix Process for Agencies’ Use

Carriers’ Rights/Responsibilities in Coverage/Claims – In Sum:

Under the general legal standard, carriers decide what to offer, how and how they will respond to claims. However, this has changed in this new federal law for this exposure only.

All carriers offering C/L coverage in the U.S. (except reinsurers) are required to participate in this backstop and offer the coverage. Further, each carrier will be guided by the same definition for acts of terrorism[i]. Last, it is the federal government that will decide and declare when an event is considered an act of terrorism, the scope of that event (location, time, dates, natures of events) and determine what state laws will apply to guide the class-treated claims and potential litigations.

Carriers are to provide notice to all current policyholders about the law, the availability of the coverage, explain the terms and conditions and include an offer that has some pricing. The insured has a limited number of days to decide.

Carrier & Agents under this Law & Process – In Sum:

Each carrier must decide how it will communicate with its current policyholders. They also need to advise their agents exactly what they intend to do, how and provide copies for their agents.

It is PIA’s hope that our members’ carriers will fully embrace NAIC’s view and instructions. We hope that all state DOIs do likewise.

However, how each carrier offers, prices and processes may be different. Therefore, it is important for PIA members in writing (tracked e-mail counts) to request each of their carrier’s written instructions, as well as copies of the forms/notices each carrier is sending to current policyholders.

We further suggest that PIA members also ask about what process each carrier will be following on prospective insureds during this time and afterwards.

Last, be sure to have carriers state that the procedures they are directing you to complete are in compliance with both the federal law and the state insurance statutes, regulations and rules in affected states for this coverage.

Additional Suggested Agency Consideration:

-PIA member agencies need to thoroughly review the published (not verbal explanations) bulletin on this subject for each of their carriers.

-Create a file for each carrier that will contain copies of ALL related documents – providing a central library/reference point for agency personnel to review the details of any newly issued endorsements.

-This file should also include the copies of statements/explanations of coverage that each carrier is issuing to insureds.

-In addition to the per carrier files with carrier-provided documentation, develop an easy reference matrix as a centralized reference point for all staff listing each of your carriers.

From each carrier’s bulletin PIA agencies must be able to determine and note:

-The various forms of coverage that you have placed/place with each carrier.

-For each carrier & coverage, note what the carrier’s stated position/coverage directive is to you, i.e. covered, limited coverage/conditions, no coverage.

-Be sure to include any variance in these among class of business if applicable.

-Indicate the current status each carrier gave this directive, i.e. coverage directive is a change from previous coverage decisions or a clarification of pre-stating interpretation.

-Any newly issued endorsements with their coverage meaning (provided by the carrier).

-Be sure to include status for various forms of coverage currently enforce/expired VS. new offers/renewals.

-Whether you are to use the letter/notice from the carrier to current policyholders as the upfront disclosure/explanation of coverage for new/prospective insured.

-For multi-state agencies &/or agencies with commercial clients with multi-state exposures - indicate whether there are any differences in each carrier’s matrix for different states and/or whether the carrier has issued new business/renewal business partial or full moratoriums, in what state(s), for what covers and/or classes of business.

-E-mail address and name of the carrier’s contact person in these matters so that agencies can e-mail (not call-in) any of their questions/need for information and request a written response from this carrier representative.

Using the matrix and as agencies develop new business/prepare for renewing business, you may wish to:

- Add this coverage item to your proposal outline to review with clients/prospects.

-Create a check-off that you have discussed the coverage to determine if this is something the client/consumer desires/requires.

-Depending upon the circumstances, your conversation will educate the client/prospect as to whether this exposure has been/is now excluded & what the possibilities (if any) & potential costs (ball park) are for securing separate cover for this exposure would be.

-For this point on – the general E&O procedures agencies use for proposal review & client/prospect check-off of coverage offered and declined or taken will apply.

If any carrier or member has any questions with regard to these suggestions, please contact Pat Borowski ().

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