Webel - Terrorism

• • To fill need unmet by private as they generally exclude terrorism
  • need it for mortgage -> unmet business need
  • delayed construction if no coverage -> slow down eco (social purpose)
  • Convenience: gov can set it up quickly and find ways to recoup losses

• • • • Temp fed program of public and private sharing of terrorism losses to allow private market to stabilize

• • • • Protect consumers by ensuring availability and affordability of terrorism insurance

• • • Preserve state regulation of insurance

• Protect customers: Yes, available for all commercial p.h. with affordable price with fed reinsurance support
• State regulation: Yes, did not interfere with state power (except definition of terrorism act)

• Small: no fed sharing
• Medium: fed role is to spread loss over time and insurance industry, assist up front but recoup payments thru levy on insurance policies
• Large: fed pays most of losses, but recoupment still possible.

• Industry losses > 100m 200m for Fed to start sharing
• Insurer pays ded (20% of direct EP)
• Fed pays 85% 80% of insurer’s net losses, until industry totals 100b, after which no coverage from fed or insurer
• Fed recoup outlays thru surcharges:

• • • • • • If insured losses < 27.5b, recoup 133% of gov outlays

• • • • • • If > 27.5b, recoup reduced amount of outlays

• Require insurers offering LOB covered by TRIA to make terrorism insurance available to their comm p.h.
• Terrorism insurance offer must reveal both premium charged and possible fed share of compensation.
• State regulators have authority to modify excessive, inadequate, or unfairly discriminatory rates.

• Fed defines Act of Terror
• States not allowed to enact laws on rate and form approval for terrorism or on policy exclusions for acts of terror.

• 1. 1. 1. 1. 1. 2. A sufficiently large # of insureds to make losses reasonably predictable

• 1. 1. 1. 1. 1. 2. Losses are definite and measurable

• 1. 1. 1. 1. 1. 2. Losses are fortuitous or accidental

• 1. 1. 1. 1. 1. 2. Losses are not catastrophic (unlikely to affect a large # of insured at the same time)

• 1. 1. 1. 1. 1. 2. No. not mandatory coverage and expensive so dfficult to achieve large enough pool

• 1. 1. 1. 1. 1. 2. Likely not. no credible history of data to predict losses with accuracy; have to use models with expert views.

• 1. 1. 1. 1. 1. 2. No. deliberate act.

• 1. 1. 1. 1. 1. 2. Depends on geographic concentration (UW can make it not catastrophic)

• 1. 1. 1. 1. 1. 2. No. if not mandatory, likely only high risks purchase. Can have large pool if mandatory

• 1. 1. 1. 1. 1. 2. No. lack of historical industry data, not easy to quantify loss potential

• 1. 1. 1. 1. 1. 2. Yes. caused by random weather events, but can argue predictable if insured is in flood prone areas

• 1. 1. 1. 1. 1. 2. catastrophic if insurer has exposure concentrated in one area that is affected

• CAT bond
• private reinsurance