IRMI Update—Issue #89
An E-mail Newsletter for Risk and Insurance Professionals
ISSN: 1530-7948
May 25, 2004
In This Issue
Colleague,
TRIA is starting to get a lot of attention now, and it should. The protection
provided by the Act is slated to end on December 31, 2005, and it will literally
take an act of Congress to keep that from happening. Unless Congress does act,
the renewal or replacement of workers compensation, property, and perhaps other
insurance lines will likely be problematic throughout 2005 since their policy
periods will extend beyond the period of protection provided by TRIA. You may
even see some nonrenewal notices beginning this fall, so, now is the time to
get your ducks in a row.
In dismissing TRIA as unnecessary, some people discuss the low take-up rate
for optional TRIA coverage. However, the take up rate is much higher than the
20 to 30 percent that is mentioned because these statistics overlook the fact
that not all TRIA coverage is optional. For example, everyone who buys workers
compensation insurance is purchasing TRIA coverage. Additionally, in many parts
of the country, insurers do not offer a terrorism coverage opt-out to their
smaller commercial lines accounts. Instead, they merely include the coverage
with everything else. Lastly, those insureds in the so called fire-following
states are benefiting from TRIA even if they don’t buy the optional coverage.
The insurance industry seems to have given up on trying to develop its own
solution to the problem. The major workers compensation insurers funded a
feasibility study to determine if an industry pool would provide the needed
capacity. When the study—conducted by Towers Perrin—showed that it wouldn't
even come close to providing the needed capacity, the industry decided the federal
government was the only option. The state insurance regulators seem to be onboard
with this as well.
Frankly, until I read the Towers Perrin workers compensation pool feasibility
study, I was very disappointed that the insurance industry had not accomplished
more to prepare for January 1, 2005. Very little seems to have been done other
than fund the workers compensation pool study, lobby for an extension of TRIA
or an alternative solution, and develop contingency plans in case TRIA actually
does go away (e.g., the recent ISO "Terrorism Conditional and Post TRIA" form
filings and the development of aggregation management systems and underwriting
processes).
However, I must admit that the workers compensation pool feasibility study
helped me realize just how huge the problem is and how puny most industry-developed
solutions would be in comparison to the exposure—at least initially. But I still
can't help but wonder if "professional risk bearers" (i.e., insurers) can be
more creative than they have been. If the government must be involved, it seems
the industry could at least develop some proposals for a joint solution—perhaps
a nonprofit pre-funding vehicle established by the industry with a federal backstop
supporting it.
I don't know how we'll get there, but somewhere like this is probably where
we will eventually end up. In the meantime, you are going to see a lot of lobbying
and hand-wringing as insurers, risk managers, and others express their views
in Washington. Unfortunately, it isn't a good time to expect Congress to act
on something that has not yet become a crisis. It's all about politics from
here to November, and with recent world events there is plenty of politics to
be had. But Congress very well may have a crisis to deal with come January.
What do you think? Is TRIA necessary or critical to our industry and the
economy? Has the industry done what it should to prepare for life without TRIA?
Should the federal government reinstate TRIA or perhaps something else? Do you
expect to start seeing nonrenewal notices this fall as insurers seek to reduce
their aggregation risk? What are you doing to prepare for tougher workers compensation
underwriting standards in a post-TRIA world? What else should risk managers,
agents/brokers, or underwriters be doing now?
Another issue that has received a lot of attention lately is the revised
approach to providing additional insured status for contractors and owners.
The new endorsements are slated to go into use in July. We've been covering
these developments in our subscription services (Contractual
Risk Transfer and
Commercial Liability
Insurance). You may be pleased to learn that we are also working
with Don Malecki to produce a new edition of our very popular
The Additional Insured
Book. It is nearly ready, and I'll first announce its availability
here.
Thank you for the trust and confidence you place in IRMI.
All the best,
Jack
Jack P. Gibson
President
IRMI
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The "make available" provisions of TRIA require that, through December 31,
2004, each insurer must make available, in all of its commercial property and
casualty insurance policies, coverage for insured losses under the Act. The
secretary of the Treasury has the option of extending it through December 31,
2005, and is required under TRIA to make this determination by September 1,
2004.
The Treasury Department has requested comments regarding whether it should
make this extension of the "make available" requirements for another year, and
is accepting comments until June 6. "We hope that this broad request for public
input on the 'make available' determination will facilitate the efforts of the
Secretary to make a timely determination based upon a solid basis of information
and views provided from all parts of the nation and from a wide variety of citizens,
businesses, industry experts, and others," said Treasury Assistant Secretary
Abernathy, who oversees the Terrorism Risk Insurance Program.
The request for comments and other information related to the Terrorism Risk
Insurance Program can be found at the
Treasury Dept. web site.
There are now 543 risk management and insurance articles on IRMI.com. Below
you'll find summaries of some recent additions with links to the articles.
Risk Managers Cautiously
Optimistic in San Diego—At the recent RIMS conference, Jack Gibson
concluded that, while optimistic about the current state of affairs in risk
management, risk managers sense that things could easily take a turn for the
worse at any time.
Arch Capital and Turner
Corp. CEOs to Keynote Construction Risk Conference—Constantine Iordanou,
president and chief executive officer of Arch Capital Group Ltd., and Thomas
C. Leppert, chairman of the board and chief executive officer of The Turner
Corporation, will be the featured keynote speakers at the 24th IRMI Construction
Risk Conference. We are excited to have an opportunity to host such highly respected
CEOs from the insurance and construction industries. They will discuss their
views for the future and share their thoughts on what it takes to stay on the
leading edge of construction risk management and insurance. The conference will
be held in Orlando on November 8–11. Mark your calendar to reserve the dates.
New Edition of the Glossary of Insurance and
Risk Management Terms—The ninth edition of IRMI's popular
Glossary defines 2,800 key insurance and
risk management terms in plain English with a focus on practical application.
This popular reference gives you quick answers to questions involving unfamiliar
terminology used in insurance specifications and proposals, risk management
reports, and other written documents you receive. It also provides directories
of important organizations and regulatory offices and contains more than 860
frequently used abbreviations and acronyms.
More information.
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