Terrorism Risk Insurance Program

Jeffrey S. Bragg Executive Director

Terrorism Risk Insurance Program Purpose

Address Insurance Market Disruptions Ensure Availability and Affordability of Commercial P&C Terrorism Coverage Provide Transition Period Stabilize and Build Capacity in Private Market Strengthen Overall Economy

Terrorism Risk Insurance Program Overview
Certifies Act of Foreign Terrorism Resulting in Damage > 5M IN United States U.S. Missions U.S. Air Carriers U.S. Vessels FOR Commercial Lines P & C Workers Compensation

Secretary of Treasury

Secretary of State

Attorney General

Terrorism Risk Insurance Program Restrictions

Temporary Program Expires 2005 Company Deductible 2005 15% + 10% Insured Loss $100 Billion Annual Cap on Insured Losses


Terrorism Risk Insurance Program Goals

Continued availability/affordability of insurance from Certified Acts of Terrorism Transitional period for private markets to stabilize, build capacity Preserving state insurance regulations Equitable distribution of shared costs of recovery

• •

Terrorism Risk Insurance Program Core Values

• • • • •

Sense of Urgency and Purpose Open and Transparent Operations Efficient, Fair and Accurate Service Fiscal Responsibility Accountability

Terrorism Risk Insurance Program Regulations


Final Rule


Provides key definitions, such as “Act of Terrorism,” “Insurer,” and “Affiliate” Identifies lines of Commercial Property & Casualty Insurance included in the Program •

2nd Final Rule - Make available requirements
Disclosure requirements

3rd Final Rule - State residual market mechanisms


Terrorism Risk Insurance Program Claims Rule

Speed with which TRIP will act on a request for reimbursement. Payment of allocated loss adjustment expenses. Level of documentation required to support a claim. Unique data elements required in reporting. Partial payments.

• • • •

Terrorism Risk Insurance Program Advance Payments
1. Company Submits Certification of Loss with Bordereau TRIP Claims Management

2. Reviews COL for Accuracy Recommends Payment

4. TRIP Office Approves Payment

Insurance Co.

3. Co. Establishes Segregated Account

Request ASAP System Payment

5. Treasury Issues Funds


Terrorism Risk Insurance Program Claims Forms

3. 4. 5. 6. 7.

Initial Notice of loss Certification of loss Schedule A – DEP & Insurer deductible Schedule B – Certification of Compliance Schedule C - Bordereau

Terrorism Risk Insurance Program Bordereau Formats

• • • •

Excel Comma delimited text file Pipe delimited text file Online manual Completion

Terrorism Risk Insurance Program Claims Process

- Links to:

• •

TRIP Claims Manager ASAP


Terrorism Risk Insurance Program TRIP Service Contractors

•Paragon •ISO •Deloitte

Claims Processing & Management

Statistical Reporting

Claims Auditing

Terrorism Risk Insurance Program Contracting Process

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

Develop initial statement of work Analyze requirements Acquisition Office/TRIP Office development of Procurement Plan Conduct market research-receive comments Coordination of technical issues, e.g., systems, financial, accounting Issue request for comments (optional)-receive and analyze comments TRIP Office redraft of statement of work-develop independent cost estimate Acquisition announce planned RFP release date on TRIP/Acquisition development selection plan Acquisition Office preparation and clearance of RFP Release of RFP-Announce RFP FEDBIZOPPS.GOV Receive and answer questions Conduct pre-proposal conference Amend solicitation (as required) Receive and evaluate proposals Establish a competitive range, obtain clarifications on conduction negotiations; obtain “Best and Final Offers” (as required) Preparation of Report/Recommendation; Source Selection Authority decision Acquisition Office prepare, clear and award contract 14

Terrorism Risk Insurance Program Litigation Management Rule

• • • •

Follows Requirements of Act
Exclusive Federal cause of action Preempts state causes of action (Not workers comp) Preserves government subrogation rights Federal funds not used to pay punitive damages


Presidential Memorandum
Advance approval of Secretary of Treasury for proposed settlements of Federal causes of action > $ 2M personal injury or death > $ 10M property damage


Terrorism Risk Insurance Program 6 th Rule Affiliation Determination


Final 30 to 60 Days


Timing Affiliation Determination


Terrorism Risk Insurance Program Recoupment Example
Discretionary Recoupment $5 B

$20 B Insured Loss 100 Insurers Impacted DEP 100 Insures = $20 B

Trip Pays $15.3 B

Mandatory Recoupment $10.3 B

$15 B 3rd Year Industry Aggregate Retention

15% deductible = $3 B 10% quota share = $1.7 B 100 Companies Pay $4.7 B

$4.7 B Paid by 100 companies 17

Terrorism Risk Insurance Program 7 th Proposed Rule - Recoupment

Published 30 – 60 Days Standards for Treasury Notification (6 Months Notice) Establishes Electronic Payment System Assessments in Full Year Increments (Minimum 1 Year) Annual Reconciliation/Audit

Terrorism Risk Insurance Program Rule Making Process

2. 3. 4. 5. 6.

6. 7. 8. 9. 10.
12. 13.

13. 14. 15.

Preliminary determination of regulatory content (vs. business procedures) Develop draft regs TRIP Review draft regs Reinsurer site visit Determine reg vs business process division and incorporate changes to draft reg Departmental review and possible meeting with OMB OMB review Publish in Federal Register (proposed rule) Formal public comment Paperwork Reduction Review - concurrent with public comment period Review comments Revise regs Departmental review OMB review Publish final regs in Federal Register

Terrorism Risk Insurance Program Program Issues

State Exemptions (NBC) Losses in Excess $100B Foreign -vs- Domestic Terrorism Program Extension


Terrorism Risk Insurance Program Program Alternatives
TRIP Extended Group Life Deductibles and/or Retention TRIP Not Extended No Substitute Program TRIP Extended but only if RNBC or >25M Threshold TRIP Extended with Group Life Higher Deductibles No Exclusion RNBC Privatize TRIP

TRIP Extended Minor Changes

TRIP Extended with Group Life TRIP Extended Deductibles and/or Market Retention

TRIP Not Extended Pool Substitute


Terrorism Risk Insurance Program Treasury Offices

Financial Institutions

Office of Economic Policy
Studies Group Life Make Available Program Alternatives

TRIP Implementation Program Management Program Operations Effectiveness Claims Management/Processing Financial Integrity Operational Efficiency


Terrorism Risk Insurance Program Market Corrections

Property Insurance take up % rate
2003 1st Quarter 24% 2004 3rd Quarter 57%

Cost of coverage - % of premium
2003 1st Quarter 10% - 50% 2004 3rd Quarter 4.2%