U.S. insurance groups look for temporary reinsurance solution for terrorism

Chicago-based The National Association of Independent Insurers (NAII) has released a proposal which it believes offers the best short-term solution to insurers in the wake of the reduction in reinsurance cover for terrorism exposures. NAII says it will continue to work with other insurance industry bodies toward identifying a more permanent solution to terrorism coverage.At the top of NAII’s proposal list is temporary federal "backstop" financing fund to provide insurers with relief relating specifically to terrorist-related losses. The proposal was submitted in response to the congressional debate taking place this month to establish a financing mechanism for terrorist attack losses. NAII senior vice president Carl Parks notes, "reinsurers are excluding coverage for terrorism, which will make it extremely difficult for primary insurers to provide such coverage without the risking the financial health of their companies. But, while reinsurers can amend their policy forms without state regulatory approval, it is more difficult for primary insurers to make these changes."In releasing details of the temporary government "reinsurance plan", Parks stresses the fact that such an initiative would be of a short-term nature, allowing the insurance industry to evaluate the risks involved with terrorism, and thereby determine a workable long-term solution. "The most important component of our proposal is that any federal intervention should complement the private insurance market and be of limited duration."The following steps were recommended by NAII:1. Federal financial involvement as a "high level backstop" for insurers;2. That such a federal program should have a "sunset" clause for three years;3. The program would be limited to covering terrorism reinsurance claims costs;4. The program should not require a full-time federal regulator;5. That contracts should provide "following form" coverage and not expand on coverage provided by current primary insurers.NAII says it has also submitted recommendations for catastrophic loss claims handling procedures to the National Association of Insurance Commissioners (NAIC), at the regulatory body’ request. Although the suggestions forwarded apply specifically to the events of September 11, NAII senior director of claims services John Eager says, "NAII believes that its recommendations could be viewed as ones that may be applicable for victims of other disasters of this magnitude".NAII has proposed that a "national claims handling protocol" should be developed, including the creation of an "Insurance Emergency Operation Center" similar to the New York Disaster Center to facilitate and coordinate claims information. Other key factors include identifying alternatives of proof of losses than that applied under normal circumstances, namely the use of an affidavit for life insurance claims in lieu of a death certificate. NAII also believes that a catastrophic claims handling protocol should enable a coordinated approach to identify, investigate and prosecute perpetrators of fraudulent claims.