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Volume X, Number 339

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US Department of the Treasury Seeks Public Comments on Proposed Terrorism Risk Insurance Program Regulations

The US Department of the Treasury (Treasury) published an official notice on November 10, 2020, seeking comments from interested parties on proposed new rules promulgated under the latest version of the Terrorism Risk Insurance Act (TRIA). TRIA was first enacted in 2002 as a temporary government program to provide a federal backstop for certain insured terrorism losses. The act has been amended and extended multiple times since then, most recently in 2019, when the Terrorism Risk Insurance Program (TRIP) was extended until December 31, 2027.

IN DEPTH


Treasury is seeking comments on certain aspects of the 2019 legislation, including whether any amendments are necessary to the timeframe and process by which Treasury certifies that a covered act of terrorism has occurred—for example, allowing third parties to petition for certification or imposing mandatory timeframes for Treasury to certify an event. Such changes, if implemented, would remove some of the government’s discretion in whether/when to certify that a covered terrorist event has occurred, and could have a meaningful impact on how TRIA might work in practice. Treasury also seeks comments as to whether there should be coverage under TRIA for non-US cyber-related terrorist events that cause losses within the United States, and whether it would be appropriate to change current reimbursement formulas that are thought to favor captive insurers over traditional insurers.

It is interesting, however, to compare and contrast Treasury’s proposed changes with those recommended earlier this year by the Advisory Committee on Risk-Sharing Mechanisms. The Advisory Committee was created by the 2015 reauthorization of the TRIA legislation to provide advice and recommendations on the creation of private market terrorism risk-sharing mechanisms, and its membership constitutes industry thought leaders. In addition to the issues identified by the Treasury in its November 10 notice of proposed rulemaking, earlier this year the Advisory Committee also recommended in its Report in May 2020 that Treasury and/or the Federal Insurance Office (FIO) consider a wider range of issues, including:

  • Whether the current $100 billion cap on federal payments should be indexed, particularly in light of evolving loss models for Nuclear Biological Chemical and Radiological (NBCR) events

  • Whether industry retention levels also ought to be indexed

  • Whether mandatory recoupment levels (now at 140% of insured losses) and amounts ought to be modified to reverse or reduce the shift in financial responsibility for TRIP losses from the government to policyholders and to study the possibility that for certain terrorism events the federal government might actually make money from recoupment payments.

It appears from the current proposed rule that Treasury/FIO will not be examining these and other issues identified by the Advisory Committee at this time.

Should anyone need more detailed information or have an interest in submitting comments to Treasury (comments are due January 11, 2021), we would be pleased to advise further.

© 2020 McDermott Will & EmeryNational Law Review, Volume X, Number 323
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Andrea Best Insurance Regulatory Compliance Attorney McDermott Will Emery Law Firm UK
Partner

Andrea T. Best* advises clients on insurance regulatory compliance throughout the United States. She works with insurers, reinsurers, intermediaries, brokers, trade associations and others in the insurance market.

Andrea actively monitors state insurance-related legislative and regulatory developments and works extensively with London, Bermuda and European insurance market participants regarding non-admitted insurance and reinsurance transactions in the United States, including regulatory advice on structuring insurtech, and on sharing economy and gig economy insurance programs in...

+44 20 7577 6950
Thomas M. Dawson Corporate & Insurance Attorney McDermott Will & Emery New York, NY
Partner

Thomas M. Dawson represents US and non-US insurers on regulatory, licensing and corporate matters.

Tom advises industry participants on a wide variety of regulatory and transactional matters, including cybersecurity compliance, insurtech ventures and Holding Company Act filings. He has helped clients form, acquire and invest in US insurers, reinsurers and intermediaries. He counsels non-insurers on advertising, licensing and marketing generally, and provides regulatory compliance advice to service contract issuers and other specialty product providers.

Tom has guided non-US...

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