terrorism risk insurance program jeffrey s. bragg executive director

Terrorism Risk Insurance Program

Jeffrey S. BraggExecutive Director

2


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

3


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 CompensationSecretary

ofState

Secretary of

Treasury

AttorneyGeneral

4


Restrictions

• Temporary ProgramExpires 2005

• Company Deductible 2005 15% + 10% Insured Loss

• $100 Billion Annual Cap on Insured Losses

5


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


Core Values

• Sense of Urgency and Purpose

• Open and Transparent Operations

• Efficient, Fair and Accurate Service

• Fiscal Responsibility

• Accountability

7


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

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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.

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Advance Payments

TRIP Claims Management

4. TRIP Office Approves Payment

5. Treasury Issues Funds

3. Co. Establishes Segregated

Account

Insurance Co.

1. Company Submits

Certification of Loss with Bordereau

2. Reviews COL for Accuracy Recommends

Payment

Request ASAP System

Payment

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Claims Forms

1. Initial Notice of loss

2. Certification of loss

3. Schedule A – DEP & Insurer deductible

4. Schedule B – Certification of Compliance

5. Schedule C - Bordereau

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Bordereau Formats

• Excel

• Comma delimited text file

• Pipe delimited text file

• Online manual Completion

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Claims Process

• www.treas.gov/trip

- Links to:

• TRIP Claims Manager

• ASAP

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TRIP Service Contractors

•Paragon Claims Processing & Management

•ISO Statistical Reporting

•Deloitte Claims Auditing

14


Contracting Process

1. Develop initial statement of work2. Analyze requirements3. Acquisition Office/TRIP Office development of Procurement Plan4. Conduct market research-receive comments5. Coordination of technical issues, e.g., systems, financial, accounting6. Issue request for comments (optional)-receive and analyze comments7. TRIP Office redraft of statement of work-develop independent cost estimate8. Acquisition announce planned RFP release date on 9. TRIP/Acquisition development selection plan10. Acquisition Office preparation and clearance of RFP11. Release of RFP-Announce RFP FEDBIZOPPS.GOV12. Receive and answer questions13. Conduct pre-proposal conference14. Amend solicitation (as required)15. Receive and evaluate proposals16. Establish a competitive range, obtain clarifications on conduction negotiations; obtain “Best and Final

Offers” (as required)17. Preparation of Report/Recommendation; Source Selection Authority decision18. Acquisition Office prepare, clear and award contract

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Litigation Management Rule

1. 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

2. Presidential Memorandum• Advance approval of Secretary of Treasury for proposed

settlements of Federal causes of action > $ 2M personal injury or death> $ 10M property damage

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6th Rule Affiliation Determination

1. Final 30 to 60 Days

2. Timing Affiliation Determination

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Recoupment Example

DiscretionaryRecoupment

$5 B

MandatoryRecoupment

$10.3 B

$20 B Insured Loss100 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

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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

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Rule Making Process

1. Preliminary determination of regulatory content (vs. business procedures)2. Develop draft regs3. TRIP Review draft regs4. Reinsurer site visit5. Determine reg vs business process division and incorporate changes to draft reg6. Departmental review and possible meeting with OMB7. OMB review8. Publish in Federal Register (proposed rule)9. Formal public comment10. Paperwork Reduction Review - concurrent with public comment period11. Review comments12. Revise regs13. Departmental review14. OMB review15. Publish final regs in Federal Register

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Program Issues

• State Exemptions (NBC)

• Losses in Excess $100B

• Foreign -vs- Domestic Terrorism

• Program Extension

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Program Alternatives

TRIP Extended

Minor Changes

TRIP Extended

Group Life

Deductibles and/or

Retention

TRIP Extended but only if RNBC or >25M

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

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Treasury Offices

Financial InstitutionsOffice of Economic Policy TRIP Studies

Implementation Group LifeProgram Management Make Available Program Operations Program AlternativesEffectivenessClaims Management/ProcessingFinancial IntegrityOperational Efficiency

23


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%

terrorism risk insurance program jeffrey s. bragg executive director

Documents

act of terrorism

act of foreign terrorism

segregated account insurance

trip claims manager

schedule c bordereau

manual completion slide

bragg executive director

certification of loss