FROM THE OFFICE OF PUBLIC AFFAIRS

Today President Bush signed into law the Terrorism Risk Insurance Act of 2002.  Since the terrorist attacks of September 11, 2001, the economy has been harmed by the withdrawal of many insurance companies from the marketplace for terrorism risk insurance. Their withdrawal in the face of great uncertainty as to their risk exposure to future terrorist attacks led to the cancellation of construction projects, increased business costs for the insurance that was available, and substantial risk-shifting among corporate balance sheets.

Treasury Secretary O’Neill thanked members of Congress on both sides of the aisle for their efforts in passing this important legislation.  Secretary O’Neill said, “This legislation is a critical element in our economic recovery.  It reduces the economic risks and economic consequences associated with the threat of future terrorist attacks.  It will help restore insurance capacity to the marketplace, which will promote new construction and spur economic activity.” 

The new law establishes a temporary Federal program providing for a system of shared public and private compensation for insured commercial property and casualty losses arising from acts of terrorism under the Act.  The program will be administered by the Treasury Department and will sunset on December 31, 2005.  The Treasury Department intends to work closely with the National Association of Insurance Commissioners (NAIC) to implement the program and has begun consultations with the NAIC on a range of implementation issues.

Under the new law, insurance companies included under the program must make available to their policyholders coverage for insured losses from acts of terrorism under the program. 

The law also requires insurance companies to disclose to policyholders the premium charged for terrorism risk insurance and the Federal share of compensation provided under the law.

The Treasury Department will work closely with the NAIC to monitor the effects of the new law on insurance premiums. Plans to implement the program include:

• Consultation with the NAIC.  The Treasury has been in discussion with the NAIC on disclosures, defining key terms in the Act, and other implementation issues.  The Treasury plans to work closely and consult with the NAIC throughout the implementation of the program. 
• Disclosures.  The Act requires insurers to provide clear and conspicuous disclosure to the policyholder of the premium charged for insured losses covered by the Terrorism Risk Insurance Program and the Federal share of compensation under the Program.  The Act also allows insurers to reinstate existing terrorism exclusions if certain disclosures are made to policyholders.  Treasury will issue regulations at a later date, but will issue interim guidance next week on types of disclosures that could satisfy the requirements of the Act.  In this regard, Treasury will review model disclosure forms developed by the NAIC.  The interim guidance will assist insurance companies in complying with the Act’s disclosure requirements prior to issuance of regulations, but will not be the exclusive means of complying with the Act. 
• Definitions and Other Key Decisions.  The Treasury will issue regulations and, where needed, interim guidance in the next few weeks concerning definitions for several terms contained in the Act and how the program will apply to captive insurers and other self-insurance arrangements, and state residual market insurance entities.
• Studies.  The Act requires the Treasury to study, on an expedited basis, whether adequate and affordable insurance for acts of terrorism is available to insurers that issue group life insurance in the United States, and the extent to which the threat of terrorism is reducing the availability of group life insurance for consumers.  Next week, Treasury plans to submit a notice to be published in the Federal Register requesting public comment on a series of questions regarding this study.
• Administrative Issues.  A new Terrorism Risk Insurance Program Office within the Treasury Department will be established and headed by a Program Administrator.  Announcements regarding a Program Administrator will be made as the plans are finalized over the next few weeks.  Treasury expects the Program Office to have a small staff, relying upon one or more outside contractors to assist the Treasury in claims administration in the event of a future terrorist attack that produces claims under the Program. 

The Treasury is also announcing the launch of a web site to make information available to the public on Treasury’s implementation of the Act.  The site, found at http://www.treas.gov/trip, will provide updated information on the program, including announcements of all rulemakings, interpretive guidance, and requests for public comments.  The web site will continue to be updated in the upcoming weeks.