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National Association of Professional Insurance Agents
TRIA Outline for NAIC Hearing March 29, 2006 Westin New York at Times Square- Broadway Ballroom at 9am Submitted Remarks- David Eppstein, Director, State Affairs • I am speaking today on behalf of our member agencies, retail independent insurance agency owners across the country serving the insurance needs of smallto-mid size business customers and their local communities. In commercial lines, PIA’s customers are all the small-to-mid-size commercial businesses that make up the backbone of the U.S. economy in urban, suburban and rural communities. Since September 11, 2001, PIA members have reported an increase each year in the number of their commercial insurance customers being required by lenders to be sure an opt-in for TRIA coverage for their properties is available. An increasing number of lenders are issuing these reminders of insurance coverage requirements in compliance to the requests of their regulators. Most people think in terms of only lenders on trophy buildings making such requests. But such is not the case. Outstanding loan portfolios need to be protected by TRIA whether it is a loan for $100 million or $100,000 on the mortgaged building. Also, many owners of large commercial buildings/complexes shift the direct responsibility for securing the required insurance from the owner to each tenant. Thus, the TRIA obligation of the owner is now transferred as an obligation of all the small-to-mid-size commercial tenants under lease agreements, again brining in our members’ customers. PIA supported the Terrorism Risk Insurance Extension Act of 2005 and we are urging Congress to work now to assess long-term mechanisms for terrorism insurance coverage once the extension expires at the end of 2007. We recognize that acts of terrorism continue to pose an unprecedented challenge for the insurance industry and it remains extremely difficult if not impossible for underwriters to accurately determine premiums based on sound actuarial calculations. TRIA is an important part of the nation’s economic recovery safety net. The current mechanism allows insurers and commercial insurance consumers to manage terrorism risks in a cost effective manner. Without this backstop, the
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federal government would be left solely responsible for funding the direct and short term costs from future terrorist attacks, as well as the longer term costs associated with an economic recovery. Private sector capital is NOT being kept out of the market by TRIA. Nothing in TRIA prevents private markets from offering coverage, but no one is willing to do so. • We request that the NAIC work with the entire commercial lines sector in order to fashion a more workable transition that will still require a private sector-federal partnership. Working with NAIC, Congress and Treasury can help form an appreciation of the unique issue of timing for decisions and approaches needed in our business for the best interest of consumers. Timing is essential- Legislators and regulators must take into consideration the business cycle of insurance when making decisions. Market tension is needlessly created when policy decisions are not made with insurance business cycles in mind. For example, January 1 renewals are being underwritten in many cases as early as a year before the deadline. For non-renewals, you must give 120 days notice, so these notices are going out in August. In order to send out the notice in August, the decision must be made in May or June. Policy makers must pay attention to this business cycle. Policy makers must also keep in mind that laws need regulations to implement. We are still in the process of implementing regulations from the original TRIA. PIA advocated the passage of the House version of the TRIA extension in large part because of the inclusion of a public-private commission composed of a Treasury nominee, state insurance commissioner, and members of the insurance industry charged with making recommendations on facilitating private industry terrorism insurance. Unfortunately, this did not make it into the legislation signed by the President. Therefore, we are advocating the passage of H.R. 4619, the Commission on the Terrorism Risk Insurance Act, sponsored by Representative Vito Fossella (NY) that creates a panel to report to Congress by the end of this year whether a long-term federal backstop is needed when the current backstop expires. PIA has worked with NAIC for years on availability and affordability especially how those cycles particularly impact the small-to-mid-size business. Also Workers compensation through residual markets has more direct state government involvement and capital/reserve exposure than general lines of commercial insurance. Workers compensation insurance is fundamentally different than other types of insurance primarily because it cannot be excluded. For these reasons we underscore the need for all to work together for a solution that evolves TRIA with the federal government and in a defined form that retains coverage availability. PIA welcomes a collective industry response on this and will work with other groups to assert the need for a federal role in terrorism insurance.
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