Treasury works to implement Terrorism Insurance Act

Citation

(2003), "Treasury works to implement Terrorism Insurance Act", Disaster Prevention and Management, Vol. 12 No. 5. https://doi.org/10.1108/dpm.2003.07312eab.006

Treasury works to implement Terrorism Insurance Act

Treasury works to implement Terrorism Insurance Act

Terrorist attacks, hurricanes, earthquakes, and other phenomena can cause substantial damage across widespread areas. Consequently, there is a continual dance among insurance providers, policy holders, and the government to find the perfect balance between providing adequate insurance coverage and affordable premiums. Providers are concerned about sustaining greater losses than they can cover, policy holders are concerned with payment of their claims, and the government is concerned with ensuring fair market practices for everyone. In November 2002, Congress enacted and the president signed the Terrorism Risk Insurance Act to provide coverage for terrorism events to property owners

Under the law, which will sunset on 31 December 2005, the federal government will act as a re-insurer of insurance providers, covering 90 per cent of insured losses above the policy deductible for terrorism loss, subject to an annual federal budget of $100 billion. However, insurers required to offer the coverage under the federal legislation will have to increase their deductibles each year until the program ends to reduce the federal government’s involvement.

Recently, the US Department of the Treasury, which administers the program, issued an interim final rule, quoting the enabling legislation that requires insurance providers to provide “clear and conspicuous disclosure to the policyholder of the premium charged for terrorism coverage and the Federal share of compensation”, intending to “enhance the competitiveness of the marketplace by better enabling consumers to comparison shop for terrorism insurance coverage, and to make policyholders better aware that the Federal government will be sharing the costs of such coverage with the insurers, thereby reducing the insurer’s exposure”.

In addition, the act requires each insurer to make available, in all of its property and casualty insurance policies, coverage for insured losses that does not differ materially from the terms, amounts, and other coverage limitations applicable to losses arising from events other than acts of terrorism.

For complete information on the program, including an overview and other interim final rules (issued on 26 February and 18 April), see the US Department of the Treasury Web site: www.treasury.gov/trip.

(Natural Hazards Observer, Vol. XXVIINo. 6, July 2003)