The NAIC is committed to working with Congress, the Administration, state officials, and the industry to develop a long-term plan to make terrorism insurance available and affordable. President Obama signed the Terrorism Risk Insurance Program Reauthorization Act of 2015 (H.R.26) on January 12, 2015. The program was extended through December 31, 2020.
Several provisions of the initial Act have changed in the 2015 extension. Some of the more significant changes include:
- The Insurer Deductible was set at 20% of an insurer’s direct earned premium of the preceding calendar year and the federal share of compensation was set at 85% of insured losses that exceed insurer deductibles until January 1, 2016. Then the federal share is decreased by 1 percentage point per calendar year until it reaches 80%.
- The certification process was changed to requiring the Secretary of the Treasury to certify acts of terrorism in consultation with the Secretary of Homeland Security instead of the Secretary of State.
- The program trigger was amended to apply to certified acts with insured losses exceeding $100 million for calendar year 2015, $120 million for calendar year 2016, $140 million for calendar year 2017, $160 million for calendar year 2018, $180 million for calendar year 2019, and $200 million for calendar year 2020 and any calendar year thereafter.
- The mandatory recoupment of the federal share through policyholder surcharges increases to 140 percent from 133 percent.
- The insurance marketplace aggregate retention amount was established at the lesser of $27.5 billion, increasing annually by $2 billion until it equals $37.5 billion, and the aggregate amount of insured losses for the calendar year for all insurers. In the calendar year following the calendar year in which the marketplace retention amount equals $37.5 billion, and beginning in calendar year 2020 it is revised to be the lesser of the annual average of the sum of insurer deductibles for all insurers participating in the Program for the prior three calendar years as such sum is determined by the Secretary of the Treasury by regulation.
- The Secretary of the Treasury is required, not later than nine months after the date of enactment of the Act, to conduct and complete a study on the certification process, including the establishment of a reasonable timetable by which the Secretary must make an accurate determination on whether to certify an act as an act of terrorism.
- Insurers participating in the Program are required to submit to the Secretary of the Treasury for a Congressional report to be submitted on June 30, 2016 and every June 30 thereafter, information regarding insurance coverage for terrorism losses in order to evaluate the effectiveness of the Program. The information to be provided includes: lines of insurance with exposure to terrorism losses, premiums earned on coverage, geographical location of exposures, pricing of coverage, the take-up rate for coverage, the amount of private reinsurance for acts of terrorism purchased and such other matters as the Secretary considers appropriate. This information may be collected by a statistical aggregator and in coordination with State insurance regulatory authorities.
- The Comptroller General of the United States is required to complete a study on the viability and effects of the Federal Government assessing and collecting upfront premiums and creating a capital reserve fund.
- The Secretary of the Treasury is required to conduct a study not later than June 30, 2017 and every June 30 thereafter to identify competitive challenges small insurers face in the terrorism risk insurance marketplace.
- The Secretary of the Treasury is required to appoint an Advisory Committee on Risk-Sharing Mechanisms to provide advice, recommendations and encouragement with respect to the creation and development of nongovernmental risk-sharing mechanisms. The Advisory Committee will be composed of nine members who are directors, officers, or other employees of insurers, reinsurers or capital market participants.
- The terms “program year” and “transition period” are changed to “calendar year” throughout the law.
In the absence of private market innovations and solutions, sustaining a viable private market for terrorism insurance depends on a federal backstop. The NAIC and state insurance commissioners play an essential role administering the terrorism risk insurance program—issuing timely guidance to insurers and consulting with the Federal Insurance Office and its Terrorism Risk Insurance Program Office.
The NAIC has played an active role in fostering the program and providing assistance to insurers and the federal government as the program is implemented. The NAIC and its members have also testified before both houses of Congress on the need to extend the program.
The NAIC Property and Casualty Insurance (C) Committee and its Terrorism Insurance Implementation Working Group (TIIWG) recently adopted a model bulletin, including an expedited filing form intended to help state insurance regulators advise insurers about regulatory requirements related to providing terrorism insurance under the revised program. The model bulletin provides guidance to insurers related to rate filings and policy language that state regulators would find acceptable to protect U.S. businesses from acts of terrorism. The model bulletin describes important changes that are contained in the Act and informs insurers regarding whether rate and policy form filings might be needed.
The Working Group adopted the Model Disclosure Forms [Form 1] [Form 2]. Insurers use the forms as drafted, they may modify the forms to meet individual circumstances or use forms that are substantially similar. The U.S. Department of the Treasury worked with the Committee and the Working Group to assure that the disclosures satisfy the revised disclosure requirements in the Act.
The U.S. Department of the Treasury website provides updated information on the Program, including announcements of all rulemakings, interpretive guidance, and requests for public comments. A link to these can be found at http://www.treasury.gov/resource-center/fin-mkts/Pages/program.aspx