Terrorism Risk Insurance Program Jeffrey S. Bragg Executive Director

2 Terrorism Risk Insurance Program 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 Terrorism Risk Insurance Program 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 Compensation Secretary of State Secretary of Treasury Attorney General

4 Terrorism Risk Insurance Program Restrictions Temporary Program Expires 2005 Company Deductible % + 10% Insured Loss $100 Billion Annual Cap on Insured Losses

5 Terrorism Risk Insurance Program 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 Terrorism Risk Insurance Program Core Values Sense of Urgency and Purpose Open and Transparent Operations Efficient, Fair and Accurate Service Fiscal Responsibility Accountability

7 Terrorism Risk Insurance Program 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 2 nd Final Rule - Make available requirements -Disclosure requirements 3 rd Final Rule - State residual market mechanisms

8 Terrorism Risk Insurance Program 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.

9 Terrorism Risk Insurance Program 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

10 Terrorism Risk Insurance Program 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

11 Terrorism Risk Insurance Program Bordereau Formats Excel Comma delimited text file Pipe delimited text file Online manual Completion

12 Terrorism Risk Insurance Program Claims Process - Links to: TRIP Claims Manager ASAP

13 Terrorism Risk Insurance Program TRIP Service Contractors Paragon Claims Processing & Management ISO Statistical Reporting Deloitte Claims Auditing

14 Terrorism Risk Insurance Program Contracting Process 1. Develop initial statement of work 2. Analyze requirements 3. Acquisition Office/TRIP Office development of Procurement Plan 4. Conduct market research-receive comments 5. Coordination of technical issues, e.g., systems, financial, accounting 6. Issue request for comments (optional)-receive and analyze comments 7. TRIP Office redraft of statement of work-develop independent cost estimate 8. Acquisition announce planned RFP release date on 9. TRIP/Acquisition development selection plan 10. Acquisition Office preparation and clearance of RFP 11. Release of RFP-Announce RFP FEDBIZOPPS.GOV 12. Receive and answer questions 13. Conduct pre-proposal conference 14. Amend solicitation (as required) 15. Receive and evaluate proposals 16. Establish a competitive range, obtain clarifications on conduction negotiations; obtain “Best and Final Offers” (as required) 17. Preparation of Report/Recommendation; Source Selection Authority decision 18. Acquisition Office prepare, clear and award contract

15 Terrorism Risk Insurance Program 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

16 Terrorism Risk Insurance Program 6 th Rule Affiliation Determination 1. Final 30 to 60 Days 2. Timing Affiliation Determination

17 Terrorism Risk Insurance Program Recoupment Example Discretionary Recoupment $5 B Mandatory Recoupment $10.3 B $20 B Insured Loss 100 Insurers Impacted DEP 100 Insures = $20 B $15 B 3 rd 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

18 Terrorism Risk Insurance Program 7 th 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

19 Terrorism Risk Insurance Program Rule Making Process 1. Preliminary determination of regulatory content (vs. business procedures) 2. Develop draft regs 3. TRIP Review draft regs 4. Reinsurer site visit 5. Determine reg vs business process division and incorporate changes to draft reg 6.Departmental review and possible meeting with OMB 7.OMB review 8.Publish in Federal Register (proposed rule) 9.Formal public comment 10.Paperwork Reduction Review - concurrent with public comment period 11. Review comments 12. Revise regs 13.Departmental review 14.OMB review 15.Publish final regs in Federal Register

20 Terrorism Risk Insurance Program Program Issues State Exemptions (NBC) Losses in Excess $100B Foreign -vs- Domestic Terrorism Program Extension

21 Terrorism Risk Insurance Program 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

22 Terrorism Risk Insurance Program Treasury Offices Financial InstitutionsOffice of Economic Policy TRIP Studies Implementation Group Life Program Management Make Available Program Operations Program Alternatives Effectiveness Claims Management/Processing Financial Integrity Operational Efficiency

23 Terrorism Risk Insurance Program Market Corrections Property Insurance take up % rate st Quarter rd Quarter 24% 57% Cost of coverage - % of premium st Quarter rd Quarter 10% - 50% 4.2 %