NU Online News Service, Oct. 18, 12:20 p.m. – (Washington) The Treasury Secretary would have discretion to allow group life insurers to participate in a government-backed terrorism insurance program under a tentative agreement reached with members of Congress last night.
The key feature of the final agreement is a cost-sharing program under which the Federal government would pay up to 90% of losses arising from a terrorist act.
Insurance companies would be required to retain as a deductible a percentage of direct written premiums from the previous calendar year. The deductible amounts are 7% in the first year, 10% in the second year and 15% in the third year.
For losses above the deductible, the federal government would cover 90% and the insurance company 10%, subject to a recoupment schedule.
Specifically, the Treasury Secretary would be required to recoup the difference between total industry costs (that is, insurance company losses up to the deductible plus the 10% copay) and specified fixed dollar amounts.
These amounts are $10 billion in the first year, $12.5 billion in the second year and $15 billion in the third year.
The recoupment would be done through a surcharge on commercial policies, provided that the surcharge not exceed 3% of the premium paid for a policy in a given year.
Losses under the program would be capped at $100 billion. Above that amount, Congress would have to determine what to do next.
All commercial p-c companies are required to participate in the program and to offer terrorism insurance to all policyholders.
Insurers must also disclose the premiums they charge for the terrorism coverage and the existence of the federal backstop.