(Archived Content)
FROM THE OFFICE OF PUBLIC AFFAIRS
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JS-383(Slides are attached below)
Slide 1: Introduction
Slide 2:
Good morning and thank you for the opportunity to speak to you this morning on Treasurys progress and plans for implementing the Terrorism Risk Insurance Act of 2002, otherwise referred to as TRIA.
On November 26, 2002, President Bush, in an effort to address the issues you see on the screen before you, signed TRIA into law. The market for terrorism coverage was severely disrupted after 9/11. In addition to wanting to address insurance industry disruptions, the Congress and the President recognized that such widespread dislocations in insurance markets also had a negative impact on businessesability to finance economic activity and recovery.
Slide 3:
TRIA effectively places the federal government temporarily in the terrorism risk reinsurance business:
Providing coverage for commercial lines P&C losses, including workerscompensation.
Coverage is triggered when the Secretary of the Treasury, in consultation with the Secretary of State and the Attorney General, certifies that an act of foreign terrorism has occurred:
Which loss is greater than $5 million dollars in the United States and the other areas shown.
Slide 4:
Like any program there are restrictions.
Deductibles increase over the three year term of the program and are expressed as a percent of an insurers direct earned premium.
The federal governments share under the program is equal to 90% of that portion of insured losses that exceed the insurer deductible.
While there is an annual cap on insured losses: if aggregate insured losses exceed the cap, Congress will determine the procedures for and source of payments for those excess losses.
There are certain recoupment provisions and the program expires in 2005. (i.e. Riot Reinsurance experience)
Slide 5:
The Terrorism Risk Insurance Program, or TRIP, is itself under the Treasury Departments Office of Domestic Finance (headed by Under Secretary Peter Fisher) and the Office of Financial Institutions (headed by Assistant Secretary Wayne Abernathy).
TRIPs responsibilities include all of the operational functions necessary to effectively implement and manage the program, including all claims management and processing functions.
TRIP is in essence the insurance company created by the new law.
However, two additional Treasury offices play an important part in the program.
Treasurys Office of Economic Policy will be conducting certain studies to determine if the program should be extended to other lines of insurance.
The Office of Financial Institutions Policy will take the lead in promulgating rules and regulations.
TRIP will work closely with both offices as we coordinate our activities.
Slide 6:
Already, substantial progress has been made in implementing the program.
The Office of Financial Institutions Policy has been extremely active in implementing the regulations necessary to support the new Act.
They have issued four interim guidance notices and two interim final rules.
This activity culminated last week in a final proposed rule, which is in its public comment period as we speak.
Among other things these proposed rules address:
Disclosure to policy holder requirements
An interpretation of the make availableprovisions
Guidance on the Lines of Insurance covered under the act
Which entities are eligible for participation
Timing of disclosures
Compliance certification
The NCCI has been very helpful in representing your views to the Treasury Department on these and other issues. However, I urge all of you to review these proposed regulations and to comment on them directly or through your Association. We need your valuable council in implementing this program.
Slide 7:
Even though much has been accomplished, considerable work remains. Program issues remain and many in our industry have expressed concern over such issues as:
Adverse selection
Spotty state regulation (spotty state regulation has been around since Moses was a baby)
Continued Lack of reinsurance availability
Huge exposures particularly in workers compensation coverage
In fact, most of these issues have been volatile at various times in the past. And TRIA was passed in part to address them. I believe that over time, the free market will help solve these problems while TRIA contributes to help build capacity and stabilize the market.
Right now, what keeps me awake at night are operational issues.
We need to accomplish all of the things you see before you, and more, in a very short period of time.
Throughout my career, both in the private sector (with PMSC, IMSG and REM) and with my government service, I have been a strong advocate of outsourcing functions that can best be handled by others with more experience and expertise.
I have also where possible created partnerships between the government and private sector, which draws on the strengths of both entities to create a more successful program.
Therefore it should come as no surprise that in implementing this program, we will not be creating a huge infrastructure.
Rather, we will establish a virtual company that permits us to form new partnerships with the private insurance sector, harnessing the insurance industrys talents and skills to make this an effective, streamlined operation.
Once again, I look forward to working with you on this new venture and in closing, thank you for future support and your time today.
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