Federal Insurance Office

Publications

FIO Focus, Issue No. 6

Deputy Assistant Secretary Mark Sobel's Remarks at the European Financial Services Conference
02.10.12

View a PDF of this piece

Devoted to exploring the progress of the modernization of the insurance industry, FIO Focus provides information and insights about the organizations and issues that are driving change and influencing the future of the industry.

Deputy Assistant Secretary Mark Sobel's Remarks at the European Financial Services Conference

In his February 9, 2012, comments during the European Financial Services Conference, Deputy Assistant Secretary Mark Sobel of the U.S. Department of Treasury discussed the Federal Insurance Office's (FIO) and European Union's (E.U.) agreement to develop a work plan by year end. Sobel did not provide specific information about the work plan, but stated that it will focus "on areas for which insurance regulatory reform may be appropriate." He went on to express hope that FIO's work will be "helpful in addressing issues that have arisen between the U.S. and E.U., for example reinsurance collateral and Solvency II, and in dispelling uncertainty that has concerned the international insurance community."

The Federal Insurance Office's Involvement in Administering the Terrorism Risk Insurance Program

Under the Dodd-Frank Act, the Director of FIO is tasked with assisting the Treasury Secretary in administering the Terrorism Risk Insurance Program.

The Terrorism Risk Insurance Program was established by the Terrorism Risk Insurance Act (TRIA) of 2002. The Program was initially authorized for three years, and was reauthorized in 2005 and 2007. The Program is currently scheduled to remain in effect through December 31, 2014.

TRIA requires commercial property and casualty insurers to provide terrorism coverage on terms similar to non-terrorism coverage. The Terrorism Risk Insurance Program does not apply to the following lines of insurance: federal crop, livestock, farmowners multiple peril, commercial auto, surety, burglary and theft, professional liability, private mortgage, title, financial guaranty, medical malpractice, health, life, and federal flood insurance as well as reinsurance.

As used in TRIA, the term "act of terrorism" means any act that is certified by the Treasury Secretary, in concurrence with the Secretary of State, and the Attorney General of the United States. The term "act of terrorism" is defined as: "(i) to be an act of terrorism; (ii) to be a violent act or an act that is dangerous to--(I) human life; (II) property; or (III) infrastructure; (iii) to have resulted in damage within the United States, or outside the United States in the case of--(I) an air carrier or vessel . . .; or (II) the premises of a United States mission; and (iv) to have been committed by an individual or individuals, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion."

If the total damages resulting from an "act of terrorism" exceed $100 million, the Terrorism Risk Insurance Program will reimburse insurers for 85 percent of their losses above a deductible of 20 percent of the company's direct earned premiums from U.S. commercial property and casualty business during the prior year. The 20 percent deductible is based on an insurer's consolidated direct earned premiums, which include the earned premiums from any parent company, affiliates and subsidiaries. TRIA caps federal reimbursement at $100 billion.

The Treasury is authorized to audit insurers using the Terrorism Risk Insurance Program and claims submitted for reimbursement to the Terrorism Risk Insurance Program.

All causes of action for property damage, personal injury and death against an insurer arising from "an act of terrorism" are subject to federal court jurisdiction. Punitive damages are not covered by the Terrorism Risk Insurance Program.

The Treasury is authorized to recoup payments made under the Terrorism Risk Insurance Program through an annual policyholder surcharge. The surcharge is not to exceed three percent of a policy's premium.

Awaiting the Modernization Report from the Federal Insurance Office

The insurance industry continues to await the release of the FIO Director's report on modernizing and improving U.S. insurance regulation. The U.S. Department of Treasury has not released any formal information regarding the status of the document. However, on February 2, 2012, a Treasury spokesperson was quoted stating "[w]e are hard at work preparing FIO's first report on how to improve and modernize the system of insurance regulation in the U.S., and expect to send the report to Congress in the coming weeks."

Comments Submitted Regarding the Modernization Report

As reported in previous issues of "FIO Focus," FIO requested comments from interested parties on various subjects as part of its study of the insurance industry. The comment period closed on December 16, 2011, although comments are still being accepted.

On February 9, 2011, a comment was submitted which encourages FIO to consider loss mitigation efforts as a component of the insurance industry to be evaluated with respect to modernization, and as a potential method to facilitate the availability and affordability of insurance products. The full text of the comment can be found at regulations.gov.