|
 Following a year
of turmoil, debate and discussion, the U.S. Terrorism Risk Insurance Act of 2002 was
approved by Congress and signed into law by President Bush on November 26, 2002. It
establishes a three-year program of federal financial assistance in case of future
terrorist acts.
Under the new law, all primary commercial property/casualty insurance
companies are required to offer terrorism coverage to their policyholders. All terrorism
exclusions under existing policies have been temporarily suspended and all policyholders
have been given 30 days following written notification by their insurance company(ies) in
which to choose to continue their policies’ previous terrorism exclusions or to add
– and pay the required premiums for – terrorism coverage. While the program is
in effect, insurers will be responsible for the payment of a specified amount of covered
property, casualty and Workers’ Compensation claims for losses resulting from
international acts of terrorism – before federal assistance begins.
The government would pay 90 percent of the losses resulting from a terrorist attack
after those losses exceed an annual maximum for each year of the program ($10 billion for
the first year, $12.5 billion for the second year and $15 billion for the third year). The
total amount of government coverage is set at $100 billion annually. Insurance companies
would be responsible for the payment of covered losses beyond the amounts paid by the
government. (For an idea of the dollar amount of covered losses that may be sustained as
the result of a terrorist attack, it is estimated that property/casualty losses ranging
from $40 billion to $70 billion were incurred as the result of the September 11 th attacks
on New York and Washington.)
Another aspect of cost-sharing that has been built into the Terrorism Risk Insurance
Act requires that all primary commercial property/casualty insurance companies maintain a
loss deductible equal to a percentage of their direct earned premiums for each year of
participation in the program. This amount is equal to seven percent of the premiums earned
in the first full year of the program, ten percent in the second and fifteen percent in
the third.
While the Act does not limit the premiums that insurers may charge for terrorism
insurance, economic experts believe that the availability of federal “backstop”
coverage will encourage more insurers to provide more comprehensive and less costly
terrorism risk insurance to American consumers than was available prior to the September
11 th terrorist attacks.
Commenting on the anticipated impact of the U.S. Terrorism Risk Insurance Act of 2002
on the U. S. economy, President Bush asserted that the legislation would provide a
much-needed boost – not only for the insurance industry, but also for the real
estate, construction and financial industries as well. With billions of dollars expected
to be invested in new construction projects across the country, thousands of new jobs will
be created, countless new business opportunities will emerge, and America will rebuild as
a safer and stronger nation. |
