Form and endorsement changes: Approved by individual states, through December 2002

Rough Notes, Feb 2003 by Hicks, Bruce

PF&M COMPANION

Approved by individual states, through December 2002

COUNTRYWIDE

Terrorism Risk Insurance Act of 2002

Insurance Services Office has introduced a plethora of forms related to the recent approval of the Terrorism Risk Insurance Act of 2002. The forms affect a variety of lines of business and have been offered in two different bases. One group of forms has been individually filed with state regulators in the regular manner. In other words, these forms are subject to the particular state's review and decision process. The other group of forms has been "fast-tracked." Ironically, this is a step that may further developments for federal insurance oversight.

The Terrorism Act includes a provision that exempts certain forms from state review and which makes them immediately available for use by insurers. The exemption applies to forms that provide mandated coverage for losses that are due to certified acts of terrorism. It is these acts for which the federal government has agreed to financially backstop the insurance industry with a maximum amount of $100 billion. An act of terrorism is certified when the act:

* involves a total loss exceeding $5 million in property and casualty damages

* involves violence and direct destruction of property and

* has been committed by a party working on behalf of a foreign interest

The fast track forms allow companies to take action on policies at any time, new business, renewal or mid-term. The set of forms that has been individually filed with state regulators involves terrorist acts that do not qualify for certification and which are subject to pre-existing policy exclusions. Besides individual insurer action on adopting available forms (once available or approved), form use also depends upon:

* insurers' development of pricing for terrorism coverage premiums

* the line of business

* for commercial property lines, the particular state requirement regarding the inclusion of Standard Fire Policy wording

* how a particular state acted upon previous terrorism form filings

Editor's note: The list of individual states and which changes each has approved appears exclusively at the "PF&M Companion" link at the Rough Notes Web site: www.roughnotes.com.

By Bruce Hicks, CLU, CPCU