Terrorism Risk Insurance Program

1
Terrorism Risk Insurance Program

• Jeffrey S. Bragg
• Executive Director

2
Terrorism Risk Insurance Program
Purpose

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

3
Terrorism Risk Insurance Program
Overview

• Certifies Act of Foreign Terrorism
• Resulting in Damage gt 5M
• IN
• United States
• U.S. Missions
• U.S. Air Carriers
• U.S. Vessels
• FOR
• Commercial Lines P C
• Workers Compensation

4
Terrorism Risk Insurance Program
Restrictions

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

5
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

6
Terrorism Risk Insurance
Program Core Values

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

7
Terrorism Risk Insurance Program

Regulations

• 1st 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

8
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.

9
Terrorism Risk Insurance Program
Advance Payments
TRIP Claims Management

1. Company Submits Certification of Loss with
   Bordereau

2. Reviews COL for Accuracy Recommends Payment
4. TRIP Office Approves Payment
Insurance Co.
5. Treasury Issues Funds
Request ASAP System
3. Co. Establishes Segregated Account
Payment
10
Terrorism Risk Insurance Program
Claims Forms

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

11
Terrorism Risk Insurance Program
Bordereau Formats

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

12
Terrorism Risk Insurance Program
Claims Process

• www.treas.gov/trip
• - Links to
• TRIP Claims Manager
• ASAP

13
Terrorism Risk Insurance Program
TRIP Service Contractors

• Paragon Claims Processing Management
• ISO Statistical Reporting
• Deloitte Claims Auditing

14
Terrorism Risk Insurance Program
Contracting Process

• 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

15
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
• gt 2M personal injury or death
• gt 10M property damage

16
Terrorism Risk Insurance Program
6th Rule Affiliation Determination

• Final 30 to 60 Days
• Timing Affiliation Determination

17
Terrorism Risk Insurance Program
Recoupment Example

• 20 B Insured Loss 100 Insurers
  Impacted
• DEP 100 Insures 20 B
• 15 B 3rd Year 15 deductible 3 B
• Trip Industry Aggregate
  Retention
• Pays 15.3 B 10 quota share 1.7 B
• 100 Companies Pay 4.7 B
• 4.7 B Paid by 100 companies

Discretionary Recoupment 5 B
Mandatory Recoupment 10.3 B
18
Terrorism Risk Insurance Program
7th 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

19
Terrorism Risk Insurance Program
Rule Making Process

• 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
• 6. Departmental review and possible meeting with
  OMB
• 7. OMB review
• 8. Publish in Federal Register (proposed rule)
• 9. Formal public comment
• 10. Paperwork Reduction Review - concurrent with
  public comment period
• Review comments
• Revise regs
• 13. Departmental review
• 14. OMB review
• 15. Publish final regs in Federal Register

20
Terrorism Risk Insurance Program
Program Issues

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

21
Terrorism Risk Insurance Program
Program Alternatives
TRIP Extended Minor Changes TRIP Extended Group Life Deductibles and/or Retention TRIP Extended but only if RNBC or gt25M Threshold
TRIP Extended with Group Life TRIP Not Extended No Substitute Program TRIP Extended with Group Life Higher Deductibles No Exclusion RNBC
TRIP Extended Deductibles and/or Market Retention TRIP Not Extended Pool Substitute Privatize TRIP
22
Terrorism Risk Insurance Program
Treasury Offices

• Financial Institutions Office of Economic Policy
• TRIP Studies
• Implementation Group Life
• Program Management Make Available
• Program Operations Program
  Alternatives
• Effectiveness
• Claims Management/Processing
• Financial Integrity
• Operational Efficiency

23
Terrorism Risk Insurance Program
Market Corrections

• Property Insurance take up rate
• 2003 1st Quarter 2004 3rd Quarter
• 24 57
• Cost of coverage - of premium
• 2003 1st Quarter 2004 3rd Quarter
• 10 - 50 4.2