This comment letter focuses on the proposed rule changes for the Terrorism Risk Insurance Act regulations with respect to the definitions of:
• Act of terrorism; and
• Insured loss
in accordance with Treasury’s Notice appearing at 85 FR 71588 (November 10, 2020).
California Climate Insurance Working Group Sizes Up Parametric SolutionsJasonSchupp1
California’s Commissioner of Insurance convened a Working Group to explore the role innovative insurance solutions may be able to play in helping communities and families manage the risk of climate change. One of the Working Group’s recommendations is to promote parametric insurance. While traditional insurance indemnifies the policyholder for actual loss, parametric insurance pays out a pre-set amount if a disaster such as a flood, wildfire or heat wave exceeds specified parameters.
There is just one hitch: Parametric insurance is not insurance. After the 2008 financial crisis, Congress enacted Dodd-Frank to, among other things, sweep parametric and other event contracts under the jurisdiction of the Commodities Futures Exchange Commission (CFTC). The Working Group is right to highlight the potential for parametric solutions to become an effective risk management tool, but it must invite the CFTC to join in the discussion if it hopes to move its recommendations toward reality.
CBI Comments on FATF Implementation of Corporate Transparency ActJasonSchupp1
Despite the IRS designation of certain captive arrangements in its “Dirty Dozen” of tax fraudsters and an increasingly intense IRS campaign scrutinizing alleged financial abuses by these entities, Treasury's Financial Crimes Enforcement Network (FinCEN) does nothing to close or otherwise control the massive loophole in U.S. financial crime defenses created by an exemption of captive insurance companies from the Corporate Transparency Act.
Representative Carolyn Maloney (NY) recently announced the reintroduction of the Pandemic Risk Insurance Act. The first version of this proposal, introduced in May 2020, largely borrowed from the Terrorism Risk Insurance Act.
This paper examines the broad net Congress cast to capture event contracts under the Commodities Futures Trading Commission's (CFTC) jurisdiction and the exclusion the CFTC crafted allowing traditional indemnity-based insurance to remain within the jurisdiction of state insurance regulation.
Compliance with TRIA - Comments to TreasuryJasonSchupp1
Treasury currently has no tools to investigate or enforce compliance with the program until after an insurance company claims a payout from the backstop. By then it will be far too late for the insurer to fix any compliance issues. Treasury’s only recourse at that point is to deny the requested reimbursement and, if appropriate, pursue civil or criminal penalties against the insurer and the company executive signing the certificate of compliance.
CBI Comments on Treasury's TRIP Data Call for CaptivesJasonSchupp1
Every year the Federal Insurance Office (FIO), as administrator of the Terrorism Risk Insurance Program, requires participating insurers to respond to a detailed data call.
Among other changes, FIO recently announced its intention to improve the data it collects from captive insurers. A captive is an insurance company that is owned by its policyholder. In many cases, a large corporation sets up a captive to manage retained risks, directly access reinsurance, and capture substantial tax advantages.
Many of these corporations also use captives to directly extract billions of dollars in benefits from government programs such as the Terrorism Risk Insurance Program and Federal Home Loan Bank system. In fact, prior data calls revealed that large corporations are expected to receive up to 95% of Terrorism Risk Insurance Program payouts through their captive insurers.
CBI has offered a number of practical suggestions to FIO to improve its data call templates and instructions. These suggestions, if adopted, would make it more likely captives will provide data that leads to useful insights for Congress and other stakeholders.
Louisiana Citizens Property Insurance Company is the state’s residual market providing property insurance to homeowners and businesses that have been unable to procure insurance in the private market. Louisiana Citizens came out of the 2005 hurricane season nearly $1 billion in debt from Hurricane Katrina and Rita losses.
As reflected in the attached graphic, Louisiana Citizens appears to have transformed itself into a leaner, financially disciplined, and well governed organization. While it has yet to publish estimated losses from Hurricane Ida, there appears little chance of a similar financial hole opening in Louisiana Citizens’ balance sheet this year.
A graphic overview of this article is available here.
2021 tria small insurer study commentsJasonSchupp1
The Terrorism Risk Insurance Act requires the Federal Insurance Office (FIO) to conduct a study of the program’s impact on small insurers. We have suggested FIO focus its upcoming report on two heighten program risks facing small insurers:
• Compliance with the separate line-item disclosure of terrorism premium; and
• A disproportionate burden of post-event policyholder surcharges.
California Climate Insurance Working Group Sizes Up Parametric SolutionsJasonSchupp1
California’s Commissioner of Insurance convened a Working Group to explore the role innovative insurance solutions may be able to play in helping communities and families manage the risk of climate change. One of the Working Group’s recommendations is to promote parametric insurance. While traditional insurance indemnifies the policyholder for actual loss, parametric insurance pays out a pre-set amount if a disaster such as a flood, wildfire or heat wave exceeds specified parameters.
There is just one hitch: Parametric insurance is not insurance. After the 2008 financial crisis, Congress enacted Dodd-Frank to, among other things, sweep parametric and other event contracts under the jurisdiction of the Commodities Futures Exchange Commission (CFTC). The Working Group is right to highlight the potential for parametric solutions to become an effective risk management tool, but it must invite the CFTC to join in the discussion if it hopes to move its recommendations toward reality.
CBI Comments on FATF Implementation of Corporate Transparency ActJasonSchupp1
Despite the IRS designation of certain captive arrangements in its “Dirty Dozen” of tax fraudsters and an increasingly intense IRS campaign scrutinizing alleged financial abuses by these entities, Treasury's Financial Crimes Enforcement Network (FinCEN) does nothing to close or otherwise control the massive loophole in U.S. financial crime defenses created by an exemption of captive insurance companies from the Corporate Transparency Act.
Representative Carolyn Maloney (NY) recently announced the reintroduction of the Pandemic Risk Insurance Act. The first version of this proposal, introduced in May 2020, largely borrowed from the Terrorism Risk Insurance Act.
This paper examines the broad net Congress cast to capture event contracts under the Commodities Futures Trading Commission's (CFTC) jurisdiction and the exclusion the CFTC crafted allowing traditional indemnity-based insurance to remain within the jurisdiction of state insurance regulation.
Compliance with TRIA - Comments to TreasuryJasonSchupp1
Treasury currently has no tools to investigate or enforce compliance with the program until after an insurance company claims a payout from the backstop. By then it will be far too late for the insurer to fix any compliance issues. Treasury’s only recourse at that point is to deny the requested reimbursement and, if appropriate, pursue civil or criminal penalties against the insurer and the company executive signing the certificate of compliance.
CBI Comments on Treasury's TRIP Data Call for CaptivesJasonSchupp1
Every year the Federal Insurance Office (FIO), as administrator of the Terrorism Risk Insurance Program, requires participating insurers to respond to a detailed data call.
Among other changes, FIO recently announced its intention to improve the data it collects from captive insurers. A captive is an insurance company that is owned by its policyholder. In many cases, a large corporation sets up a captive to manage retained risks, directly access reinsurance, and capture substantial tax advantages.
Many of these corporations also use captives to directly extract billions of dollars in benefits from government programs such as the Terrorism Risk Insurance Program and Federal Home Loan Bank system. In fact, prior data calls revealed that large corporations are expected to receive up to 95% of Terrorism Risk Insurance Program payouts through their captive insurers.
CBI has offered a number of practical suggestions to FIO to improve its data call templates and instructions. These suggestions, if adopted, would make it more likely captives will provide data that leads to useful insights for Congress and other stakeholders.
Louisiana Citizens Property Insurance Company is the state’s residual market providing property insurance to homeowners and businesses that have been unable to procure insurance in the private market. Louisiana Citizens came out of the 2005 hurricane season nearly $1 billion in debt from Hurricane Katrina and Rita losses.
As reflected in the attached graphic, Louisiana Citizens appears to have transformed itself into a leaner, financially disciplined, and well governed organization. While it has yet to publish estimated losses from Hurricane Ida, there appears little chance of a similar financial hole opening in Louisiana Citizens’ balance sheet this year.
A graphic overview of this article is available here.
2021 tria small insurer study commentsJasonSchupp1
The Terrorism Risk Insurance Act requires the Federal Insurance Office (FIO) to conduct a study of the program’s impact on small insurers. We have suggested FIO focus its upcoming report on two heighten program risks facing small insurers:
• Compliance with the separate line-item disclosure of terrorism premium; and
• A disproportionate burden of post-event policyholder surcharges.
The Centers for Better Insurance is proposing a constructive framework as a way GAO may wish to approach this report. Specifically, the attached framework examines:
• The current cyber insurance market
• The types of cyber events that could be considered for inclusion in the program
• The nature of a meaningful cyber make available requirement
• Challenges with the current backstop structure
Webcast - TRIA GAO Cyber Threats ReportJasonSchupp1
Centers for Better Insurance (CBI) provides unbiased analysis and insights about regulatory issues facing the insurance industry. The document discusses upcoming analysis from the Government Accountability Office on cyber threats and insurance. It raises questions about what events a cyber insurance program should cover, which cyber benefits insurers should be required to offer, and when the government should assume losses. CBI will examine these issues in the context of the Terrorism Risk Insurance Program and how it could be amended to address cyber threats.
Self-Insured Retentions Part 2: An Examination of the Uses and Problems (from...NationalUnderwriter
This second and concluding part of the discussion on self-insured retentions first itemizes the points that should be
considered when either drafting or accepting SIRs. The discussion then addresses some additional problem areas not only with self-insured retentions having to do with primary liability policies, but also with the SIR feature of umbrella policies. It is not unusual, furthermore, for litigants, among others, to confuse deductibles with self-insured retentions, and there are differences, as one case discussed points out. In light of the fact that self-insured retentions also are growing, it also is important that parties to a contract are informed of their existence. To not do so, could end up with the accusation of failure to procure the proper insurance and, of course, such a breach is not covered by liability policies. It is for this reason that perhaps insurance certificates should be amended to insert room to notify (and warn) certificate holders of an SIR existence.
Insurance, system of insurance accountingsooraj yadav
Insurance involves pooling funds from many insured entities to pay for losses some may incur. It protects insured entities from risk in exchange for a fee dependent on the likelihood and cost of events. There are two main types of insurance - life insurance which pays out on death or maturity, and general insurance like health, auto, or fire insurance which pays depending on financial losses from covered events. Insurance companies make money through underwriting risks and investing premiums paid, while providing protection through claims payments.
This document discusses trends in fiduciary liability insurance for employee benefit plans. It notes that standard policies now provide expanded coverage, including for pre-claim investigations, settlor functions, voluntary compliance programs, and risks from new legislation. Plans should evaluate if their current coverage is sufficient given these changes.
An insurance contract is an agreement where an insurance company agrees to compensate the insured for financial losses from specified risks in exchange for premium payments. Key characteristics include indemnifying the exact financial loss, contracts of adhesion drafted by the insurer, and consideration in the form of premiums paid by the insured. Insurance promotes savings, investment, financial security, and protection from risks for individuals and businesses. For a contract to be valid, there must be agreement between competent parties, lawful consideration, a legal purpose, and fulfillment of legal formalities. The principles of utmost good faith, insurable interest, proximate cause, and indemnity also apply to insurance contracts.
An insurance contract is an agreement between an insurer and a policyholder where the insurer agrees to provide compensation or benefits to the policyholder in exchange for premium payments. The basic elements of a contract include consideration, meeting of the minds, capacity to contract, and offer and acceptance. An insurance contract is considered a unilateral, conditional, aleatory, and contract of adhesion. A policy is the written agreement that details all terms of the insurance contract, including the rights and obligations of both parties. It contains details like policy clauses, general provisions, provisions related to the insured, and other important information.
Using Advanced Analytics to Combat P&C Claims FraudCognizant
P&C insurers need to embrace predictive and advanced analytics -- as well as analytics as a service -- to combat the growing complexity and sophistication of claims fraud.
Understanding the basics of life insurance is essential when researching and ultimately choosing which life insurance is right for you and your family.
The document summarizes changes made by the Tax Increase Prevention and Real Estate Investment Act of 2015 to section 831(b) of the US tax code regarding captive insurance companies. It increased the tax exemption amount and allows for inflation adjustments. It also aims to restrict the use of captives for estate planning by establishing risk diversification or ownership requirements. The risk diversification requirement exceeds previous IRS standards, so most captives will rely on the ownership requirement, which prohibits spouses or heirs from owning more than a 2% greater interest in the captive than the business. This may require ownership restructuring for many captives and businesses. The changes do not take effect until January 1, 2017 to allow time for existing captives to comply.
TCI Speaking Notes Final1 - APCS Mar 10 2015 jkMalcolm Smith
Malcolm Smith presented on challenges First Nation communities face obtaining affordable commercial insurance. Key issues include lack of data on community assets, which hinders underwriting. Infrastructure investments could lower losses from fires and floods to reduce premium costs. Alternate risk transfer options like reciprocal insurance exchanges or First Nation-owned brokerages could lower costs and give communities more control over insurance. Risk control initiatives and targeted infrastructure spending are essential to reducing losses and insurance costs for First Nation communities.
E&O Insurance - An Update on Legal IssuesSamantha Ip
This document provides a summary of recent case law related to errors and omissions (E&O) insurance. It discusses two key issues: 1) When do allegations become a claim, as determined by the Supreme Court of Canada in Jesuit Fathers v. Guardian Insurance, and 2) Can notice of an event from which a claim could be made trigger the duty to defend, as considered in MWH International v. Lumbermens Mutual Casualty. The document analyzes the implications of these cases for both insureds and insurers, noting they provide guidance but also limitations on coverage depending on the specific policy language and circumstances.
Report on policy insurance policy in indiarajnand_23
Term life insurance provides coverage for a fixed premium for a limited term, after which coverage is no longer guaranteed. If the insured passes away during the term, the death benefit is paid out. Term insurance is the most affordable way to get substantial life insurance coverage. There are also permanent life insurance policies that guarantee coverage for life as long as premiums are paid. Life insurance policies can also be categorized as pure protection policies or insurance-cum-investment policies that provide returns along with risk coverage. Common insurance-cum-investment policies in India include endowment plans, money back plans, and whole life plans.
The document provides an overview of accident, livestock, and cattle insurance. It defines accident insurance and describes its key types including death and dismemberment insurance, general accident insurance, and disability insurance. It discusses the features, benefits, and importance of accident insurance. It also defines livestock insurance and cattle insurance, discussing their importance and principles. The document describes the claims and settlement processes for accident, livestock, and cattle insurance policies.
CGU Motor Trade PDS (Product Disclosure Statement / Policy Wording)InsuranceRateMonitors
This document summarizes a motor trade insurance policy from CGU Insurance Limited. It outlines 10 sections of coverage available, including property, business interruption, theft, money, glass, broadform liability, employee dishonesty, machinery, computer systems, and general property. It provides definitions of key terms used in the policy like business, customers' vehicles, excess, flood, indemnify, market value, money, period of insurance, premium, property, proposal, rainwater, and replacement cost.
This document is a professional indemnity insurance policy for Bizcover Online Miscellaneous Risks. It provides coverage for civil liability arising from the conduct of professional services. Key details include:
- Coverage is provided on a claims made basis for claims first made and notified during the policy period.
- The limit of indemnity is the maximum the insurer will pay for any one claim, and the aggregate limit is the maximum for all claims during the policy period.
- Insured costs are covered in addition to or inclusive of the limit of indemnity depending on the basis of limit specified in the schedule.
- The policy outlines various extensions of coverage including compensation for court attendance, continuous cover
Climate Risk, Parametric Insurance, and Dodd-FrankJasonSchupp1
Parametric contracts may ultimately mature into an effective tool to assist U.S. businesses, nonprofits, local governments, and even families to manage risks relating to climate change. Before this product set can be trusted to deliver on that promise, parametric contracts must first be securely grounded in an appropriate regulatory framework.
Parametric contracts are undoubtedly swaps within the jurisdiction of the CFTC. The regulatory safe harbor CFTC granted to traditional insurance products only extends to state-regulated insurance policies indemnifying the policyholder to the extent of an actual, proven loss. This exception to the CFTC’s jurisdiction cannot reasonably stretch to encompass parametric contracts that promise a formulaic payout based on the parameters of an external event.
There is mounting evidence that Congress, state insurance regulators, consumers, and other stakeholders have embraced state regulation of parametric insurance contracts despite the clear jurisdictional mandate of the CFTC. For example, a bill currently pends before the U.S. House that would compel insurance companies to offer parametric pandemic insurance contracts regulated not by the CFTC but by state insurance regulators. Similarly, a recent federal Civil Innovation Grant awarded $1 million to pilot climate-related parametric insurance contracts provided to underserved communities in New York City.
Nothing prohibits an insurance company from offering parametric products so long as it complies with CFTC rules such as registration, data reporting, anti-money laundering protections, training and oversight of staff, and use registered brokers. In fact, compliant insurance companies and NFA registered insurance agents and brokers are well positioned to compete alongside other financial services sectors in a vibrant parametric contract market overseen by the CFTC.
The CFTC must either aggressively police its jurisdictional perimeter or expressly cede its authority over parametric contracts to insurance regulators. Until the CFTC speaks up, the potential for parametric contracts to contribute to the management of climate-related risk will profoundly underdeliver while consumers are marketed inefficient and legally dubious parametric insurance contracts.
CBI Comments on TRIA - Certification ProcessJasonSchupp1
Centers for Better Insurance urges Treasury to decline to open the door to a formal petitioning procedure. The U.S. Constitution’s First Amendment already allows any interested person to bring to the Secretary of Treasury’s attention an event the person believes should or should not be subject to certification. Nothing in the Program’s existing rules abridges that right.
The Centers for Better Insurance is proposing a constructive framework as a way GAO may wish to approach this report. Specifically, the attached framework examines:
• The current cyber insurance market
• The types of cyber events that could be considered for inclusion in the program
• The nature of a meaningful cyber make available requirement
• Challenges with the current backstop structure
Webcast - TRIA GAO Cyber Threats ReportJasonSchupp1
Centers for Better Insurance (CBI) provides unbiased analysis and insights about regulatory issues facing the insurance industry. The document discusses upcoming analysis from the Government Accountability Office on cyber threats and insurance. It raises questions about what events a cyber insurance program should cover, which cyber benefits insurers should be required to offer, and when the government should assume losses. CBI will examine these issues in the context of the Terrorism Risk Insurance Program and how it could be amended to address cyber threats.
Self-Insured Retentions Part 2: An Examination of the Uses and Problems (from...NationalUnderwriter
This second and concluding part of the discussion on self-insured retentions first itemizes the points that should be
considered when either drafting or accepting SIRs. The discussion then addresses some additional problem areas not only with self-insured retentions having to do with primary liability policies, but also with the SIR feature of umbrella policies. It is not unusual, furthermore, for litigants, among others, to confuse deductibles with self-insured retentions, and there are differences, as one case discussed points out. In light of the fact that self-insured retentions also are growing, it also is important that parties to a contract are informed of their existence. To not do so, could end up with the accusation of failure to procure the proper insurance and, of course, such a breach is not covered by liability policies. It is for this reason that perhaps insurance certificates should be amended to insert room to notify (and warn) certificate holders of an SIR existence.
Insurance, system of insurance accountingsooraj yadav
Insurance involves pooling funds from many insured entities to pay for losses some may incur. It protects insured entities from risk in exchange for a fee dependent on the likelihood and cost of events. There are two main types of insurance - life insurance which pays out on death or maturity, and general insurance like health, auto, or fire insurance which pays depending on financial losses from covered events. Insurance companies make money through underwriting risks and investing premiums paid, while providing protection through claims payments.
This document discusses trends in fiduciary liability insurance for employee benefit plans. It notes that standard policies now provide expanded coverage, including for pre-claim investigations, settlor functions, voluntary compliance programs, and risks from new legislation. Plans should evaluate if their current coverage is sufficient given these changes.
An insurance contract is an agreement where an insurance company agrees to compensate the insured for financial losses from specified risks in exchange for premium payments. Key characteristics include indemnifying the exact financial loss, contracts of adhesion drafted by the insurer, and consideration in the form of premiums paid by the insured. Insurance promotes savings, investment, financial security, and protection from risks for individuals and businesses. For a contract to be valid, there must be agreement between competent parties, lawful consideration, a legal purpose, and fulfillment of legal formalities. The principles of utmost good faith, insurable interest, proximate cause, and indemnity also apply to insurance contracts.
An insurance contract is an agreement between an insurer and a policyholder where the insurer agrees to provide compensation or benefits to the policyholder in exchange for premium payments. The basic elements of a contract include consideration, meeting of the minds, capacity to contract, and offer and acceptance. An insurance contract is considered a unilateral, conditional, aleatory, and contract of adhesion. A policy is the written agreement that details all terms of the insurance contract, including the rights and obligations of both parties. It contains details like policy clauses, general provisions, provisions related to the insured, and other important information.
Using Advanced Analytics to Combat P&C Claims FraudCognizant
P&C insurers need to embrace predictive and advanced analytics -- as well as analytics as a service -- to combat the growing complexity and sophistication of claims fraud.
Understanding the basics of life insurance is essential when researching and ultimately choosing which life insurance is right for you and your family.
The document summarizes changes made by the Tax Increase Prevention and Real Estate Investment Act of 2015 to section 831(b) of the US tax code regarding captive insurance companies. It increased the tax exemption amount and allows for inflation adjustments. It also aims to restrict the use of captives for estate planning by establishing risk diversification or ownership requirements. The risk diversification requirement exceeds previous IRS standards, so most captives will rely on the ownership requirement, which prohibits spouses or heirs from owning more than a 2% greater interest in the captive than the business. This may require ownership restructuring for many captives and businesses. The changes do not take effect until January 1, 2017 to allow time for existing captives to comply.
TCI Speaking Notes Final1 - APCS Mar 10 2015 jkMalcolm Smith
Malcolm Smith presented on challenges First Nation communities face obtaining affordable commercial insurance. Key issues include lack of data on community assets, which hinders underwriting. Infrastructure investments could lower losses from fires and floods to reduce premium costs. Alternate risk transfer options like reciprocal insurance exchanges or First Nation-owned brokerages could lower costs and give communities more control over insurance. Risk control initiatives and targeted infrastructure spending are essential to reducing losses and insurance costs for First Nation communities.
E&O Insurance - An Update on Legal IssuesSamantha Ip
This document provides a summary of recent case law related to errors and omissions (E&O) insurance. It discusses two key issues: 1) When do allegations become a claim, as determined by the Supreme Court of Canada in Jesuit Fathers v. Guardian Insurance, and 2) Can notice of an event from which a claim could be made trigger the duty to defend, as considered in MWH International v. Lumbermens Mutual Casualty. The document analyzes the implications of these cases for both insureds and insurers, noting they provide guidance but also limitations on coverage depending on the specific policy language and circumstances.
Report on policy insurance policy in indiarajnand_23
Term life insurance provides coverage for a fixed premium for a limited term, after which coverage is no longer guaranteed. If the insured passes away during the term, the death benefit is paid out. Term insurance is the most affordable way to get substantial life insurance coverage. There are also permanent life insurance policies that guarantee coverage for life as long as premiums are paid. Life insurance policies can also be categorized as pure protection policies or insurance-cum-investment policies that provide returns along with risk coverage. Common insurance-cum-investment policies in India include endowment plans, money back plans, and whole life plans.
The document provides an overview of accident, livestock, and cattle insurance. It defines accident insurance and describes its key types including death and dismemberment insurance, general accident insurance, and disability insurance. It discusses the features, benefits, and importance of accident insurance. It also defines livestock insurance and cattle insurance, discussing their importance and principles. The document describes the claims and settlement processes for accident, livestock, and cattle insurance policies.
CGU Motor Trade PDS (Product Disclosure Statement / Policy Wording)InsuranceRateMonitors
This document summarizes a motor trade insurance policy from CGU Insurance Limited. It outlines 10 sections of coverage available, including property, business interruption, theft, money, glass, broadform liability, employee dishonesty, machinery, computer systems, and general property. It provides definitions of key terms used in the policy like business, customers' vehicles, excess, flood, indemnify, market value, money, period of insurance, premium, property, proposal, rainwater, and replacement cost.
This document is a professional indemnity insurance policy for Bizcover Online Miscellaneous Risks. It provides coverage for civil liability arising from the conduct of professional services. Key details include:
- Coverage is provided on a claims made basis for claims first made and notified during the policy period.
- The limit of indemnity is the maximum the insurer will pay for any one claim, and the aggregate limit is the maximum for all claims during the policy period.
- Insured costs are covered in addition to or inclusive of the limit of indemnity depending on the basis of limit specified in the schedule.
- The policy outlines various extensions of coverage including compensation for court attendance, continuous cover
Climate Risk, Parametric Insurance, and Dodd-FrankJasonSchupp1
Parametric contracts may ultimately mature into an effective tool to assist U.S. businesses, nonprofits, local governments, and even families to manage risks relating to climate change. Before this product set can be trusted to deliver on that promise, parametric contracts must first be securely grounded in an appropriate regulatory framework.
Parametric contracts are undoubtedly swaps within the jurisdiction of the CFTC. The regulatory safe harbor CFTC granted to traditional insurance products only extends to state-regulated insurance policies indemnifying the policyholder to the extent of an actual, proven loss. This exception to the CFTC’s jurisdiction cannot reasonably stretch to encompass parametric contracts that promise a formulaic payout based on the parameters of an external event.
There is mounting evidence that Congress, state insurance regulators, consumers, and other stakeholders have embraced state regulation of parametric insurance contracts despite the clear jurisdictional mandate of the CFTC. For example, a bill currently pends before the U.S. House that would compel insurance companies to offer parametric pandemic insurance contracts regulated not by the CFTC but by state insurance regulators. Similarly, a recent federal Civil Innovation Grant awarded $1 million to pilot climate-related parametric insurance contracts provided to underserved communities in New York City.
Nothing prohibits an insurance company from offering parametric products so long as it complies with CFTC rules such as registration, data reporting, anti-money laundering protections, training and oversight of staff, and use registered brokers. In fact, compliant insurance companies and NFA registered insurance agents and brokers are well positioned to compete alongside other financial services sectors in a vibrant parametric contract market overseen by the CFTC.
The CFTC must either aggressively police its jurisdictional perimeter or expressly cede its authority over parametric contracts to insurance regulators. Until the CFTC speaks up, the potential for parametric contracts to contribute to the management of climate-related risk will profoundly underdeliver while consumers are marketed inefficient and legally dubious parametric insurance contracts.
CBI Comments on TRIA - Certification ProcessJasonSchupp1
Centers for Better Insurance urges Treasury to decline to open the door to a formal petitioning procedure. The U.S. Constitution’s First Amendment already allows any interested person to bring to the Secretary of Treasury’s attention an event the person believes should or should not be subject to certification. Nothing in the Program’s existing rules abridges that right.
1. An insured has the right to selectively tender its defense to one or more concurrent insurers for a loss and decline an insurer's participation.
2. An insured may deactivate a previous tender to an insurer in order to invoke exclusive coverage with another insurer, even after a claim is settled.
3. All primary insurance must be exhausted before excess coverage applies, but the insured can then selectively tender the excess indemnity to concurrent excess insurers.
CGL Coverage Form -- Coverage A (from FC&S Legal: The Insurance Coverage Law ...NationalUnderwriter
This article analyzes coverage A, bodily injury and property damage coverages of the ISO CGL form CG 00 01.
Bodily Injury and Property Damage Liability:
Summary: Coverage A of the current commercial general liability (CGL) coverage forms, both the
occurrence form and the claims-made form, provides bodily injury and property damage liability
insurance. This article discusses the features of coverage A that are common to both the occurrence
and the claims-made form.
The Terrorism Risk Insurance Act (TRIA) tries to prevent double payments of policyholder and claimant losses under multiple federal disaster relief programs. When Treasury implemented TRIA’s double payment rules more than 15 years ago it assumed future disaster relief programs would look a lot like those previously rolled out for hurricanes, floods and earthquakes.
COVID-19 has shaken that assumption.
The document provides an overview of structured settlements, including:
1. A structured settlement provides periodic payments to meet a plaintiff's needs, usually for life. It also provides upfront money for expenses.
2. All payments in a structured settlement are tax-free for the plaintiff. The funding is through an annuity purchased by the defendant's insurer.
3. Structured settlements are appropriate in cases involving future care needs, loss of earnings, minors, or those at risk of financial mismanagement. Introducing the concept of structured settlements early allows time for all parties to understand the benefits.
CBI’s Statement on PRIA to Congressional SubcommitteeJasonSchupp1
The House Financial Services Committee’s Subcommittee on Housing, Community Development and Insurance will hold a hearing on Thursday November 19, 2020 entitled Insuring Against a Pandemic: Challenges and Solutions for Policyholders and Insurers. The hearing is expected to focus on the Pandemic Risk Insurance Act (HR 7011) introduced in May by Representative Maloney of New York.
The Centers for Better Insurance is submitting the attached Statement for the Record which warns this well-intended legislation (as well as the excess program in the joint industry Business Continuity Protection Program) would:
• Leave small businesses, nonprofits, and local governments in no better position during future pandemics than they are today as they struggle to survive COVID-19 lockdown orders while battling their insurance companies in court; and
• Grant large corporations license to design their own multi-billion-dollar taxpayer funded pandemic bailouts free from Congressional oversight, U.S. Treasury supervision, and public scrutiny.
PRIA is based on the Terrorism Risk Insurance Act (TRIA) thereby adopting and amplifying its two greatest shortcomings:
• PRIA would remove only the “virus exclusion” from small business insurance policies. More than 80% of court cases dismissing small business claims for COVID-19 business interruption so far have been based on a lack of “direct physical loss or damage” – not the virus exclusion alone. PRIA is no more than a ticket for small businesses, nonprofits, and local governments to head back to court to litigate whether a virus can cause property damage as their businesses crumple under the weight of future pandemic lockdown orders.
• PRIA would allow large corporations to set up their own personal insurance companies (known as “captives”) offering their owners generous pandemic coverages with 95% of the cost transferred to the American taxpayer. According to U.S. Treasury, up to 95 cents of every dollar paid out under TRIA following a future terrorist attack would pass through captives on the way to the coffers of large corporations. No doubt large corporations would likewise siphon off the lion’s share PRIA’s payouts through these secretive special purpose vehicles.
The American taxpayer in on the hook for “only” 80% of the $100 billion TRIA program. Perhaps continued tolerance of that program’s well-known defects is somehow justifiable. However, there can be no justification to replicate these defects and extrapolate them into a taxpayer liability for 95% of a $750 billion program.
Business Continuity Protection ProgramJasonSchupp1
On May 21 the National Association of Mutual Insurance Companies (NAMIC), the American Property Casualty Insurance Association (APCIA), and the Independent Insurance Agents & Brokers of America, Inc. (Big “I") released their proposal to address future pandemics: The Business Continuity Protection Program (BCPP).
Active Capital Reinsurance Ltd commenced operations in 2007, mainly providing credit-related reinsurance solutions to financial institutions in Latin America, and it has a general insurance and reinsurance license issued in Barbados.
On May 26, Representative Carolyn Maloney of New York introduced the Pandemic Risk Insurance Act of 2020 (HR 7011).
This proposal draws on the basic framework developed for the Terrorism Risk Insurance Act of 2002. Although nearly two decades old, that program has never actually paid a claim. Accordingly, many of its design features remain (thankfully) untested.
The document examines the characteristics of insurance contracts, defining insurable risks as risks that can be pooled and calculated to determine premiums, and insurance contracts as agreements where insurers take on risks from policyholders in exchange for premiums. It also discusses the benefits of insurance in reducing uncertainty through risk pooling and diversification, as well as the costs of moral hazard and adverse selection, and how insurers use mechanisms like deductibles, limits, and coinsurance to mitigate these costs.
The NAIC & Center for Insurance Policy and Research have placed a special call for policy position briefs exploring the “potential development of a federal program to provide pandemic related business interruption coverage.”
The Centers for Better Insurance has submitted the attached short policy brief proposing the Payroll Risk Insurance Act.
Pandemic Risk Insurance Act - Make AvailableJasonSchupp1
Centers for Better Insurance analyzes key regulatory issues facing the insurance industry. This document summarizes concerns around the Pandemic Risk Insurance Act (PRIA) and how it would treat different policyholders unequally. Regular policyholders would see little direct benefit from PRIA, as standard business interruption policies require property damage to trigger coverage. However, large corporations could write their own pandemic policies without needing to prove property damage, potentially receiving large payouts with few restrictions.
The document discusses key concepts in insurance and risk management. It defines subrogation as the insurer's right to stand in place of the insured after a claim is paid to recover costs from alternative sources. It explains the essentials of the doctrine of subrogation, including that it follows the principle of indemnity and substitutes the insurer for the insured's rights up to the amount paid. It also defines indemnity as compensating the insured to the same financial position pre-loss and explains how the contract of indemnity prevents over-insurance and profit from losses.
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This document discusses professional indemnity insurance for quantity surveyors. It explains that quantity surveyors can be held liable for losses suffered by clients due to errors or negligence. Professional indemnity insurance helps manage this risk by covering damages and legal costs awarded in negligence claims. It recommends that quantity surveyors carry adequate professional indemnity coverage and maintain "run-off" coverage for several years after completing work to protect against late-emerging claims. The document also outlines what professional indemnity insurance typically covers and excludes as well as best practices for quantity surveyors to minimize their risk of negligence claims.
This document discusses insurance and risk management. It provides explanations of key concepts like subrogation, indemnity, and anti-selection bias. It also discusses the Motor Vehicle Act of 1988 and the types of static and dynamic risks. The document analyzes insurance products offered through bancassurance partnerships of SBI-New India and ICICI Prudential.
Insurance law is the practice of law surrounding insurance, including insurance policies and claims. It can be broadly broken into three categories - regulation of the business of insurance; regulation of the content of insurance policies, especially with regard to consumer policies; and regulation of claim handling.
This comment letter focuses on the proposed rule changes under the Terrorism Risk Insurance Program with respect to the outsized role captive insurers play in the Program and whether the Program should permit public identification of individual captive insurers.
The document provides an overview of the Law of Insurance course offered at Ambo University School of Law. It discusses key topics that will be covered in the five chapters of the course, including the nature and function of insurance, types of insurance, regulation of the insurance business, insurance of objects, liability insurance, and life insurance. The first chapter will cover insurance in general, the significance and basic principles of insurance such as utmost good faith, indemnity, proximate cause, insurable interest, and subrogation. Subsequent chapters will examine the regulation of insurance, rights and duties of parties, scope of risks covered and compensation, and types of insurance like property, liability, and life insurance.
Similar to CBI Comments on Proposed TRIA Regulatory Definitions (20)
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This document provides a summary of the Incorporating National Support for Unprecedented Risks and Emergencies Act (INSURE Act) (H.R. 6944) introduced by Rep. Adam Schiff on January 10, 2024. The program would create a would create a catastrophic property loss reinsurance program.
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Executive Order 14030 (Climate Related Financial Risk) directs the Secretary of the Treasury to “direct the Federal Insurance Office to ... assess, in consultation with States, the potential for major disruptions of private insurance coverage in regions of the country particularly vulnerable to climate change impacts.”
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The Centers for Better Insurance submitted comments on whether cyber incidents occurring outside the US but impacting the US could be eligible for certification under the Terrorism Risk Insurance Program. The document analyzes the statutory requirements that an act must result in damage within the US in order to be certified. It concludes that if all that occurs in the US are non-damage impacts such as economic losses, the act could not be certified, as both the damage and insured loss must take place domestically. Weighing in further could inadvertently impact pending COVID-19 business interruption claims testing similar damage trigger issues.
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On September 15, the UK High Court issued a ruling involving business interruption claims against 21 representative policies issued by 8 insurers. The ruling is a mixed bag for UK policyholders and insurers. For their U.S. counterparts, the decision provides only a few relevant insights.
While the 165-page opinion digs into the unique wording of each of the 21 policies, the fundamental theme running through the insurers’ defense was that the policies only covered localized outbreaks not global pandemics. The insurers generally lost that argument with respect to the policies containing Disease Coverage and generally prevailed with respect to policies containing only Prevention of Access / Public Authority Coverage.
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CBI Comments on Proposed TRIA Regulatory Definitions
1. 1
2019 TRIA Reauthorization Proposed Rules Comments
Centers for Better Insurance Submission on Proposed Rule Changes
The Centers for Better Insurance, LLC (CBI) is an independent organization committed to
enhancing the value the insurance industry delivers to all stakeholders (including policyholders,
employees, and society at large). CBI does so by making available unbiased analysis and insights
about key regulatory issues facing the industry for use by insurance professionals, regulators, and
policymakers. Additional information regarding CBI is available on the web at www.betterins.org
or by email request at info@betterins.org.
This comment letter focuses on the proposed rule changes with respect to the definitions of:
• Act of terrorism; and
• Insured loss
CBI is submitting separate comment letters with respect to certain other matters of relevance to
the issues raised in Treasury’s Notice appearing at 85 FR 71588 (November 10, 2020).
Definition of Act of Terrorism
CBI agrees with Treasury’s view that the current regulations could be modified to improve public
understanding of the methodology Treasury uses to compute whether the monetary threshold
for certification has been satisfied. However, CBI believes the methodology proposed by Treasury
could be configured in a manner that better suits the interests of policyholders, insurers, and the
Program.
The proposed rule would amend the definition of act of terrorism at 31 CFR § 50.4(b)(2)(ii) as
follows:
Property and casualty insurance losses resulting from the act, in the aggregate, do
not exceed $5,000,000. For these purposes, property and casualty insurance
losses include any amounts subject to payment under a property and casualty
insurance policy, even if the policyholder declined to obtain terrorism risk
insurance under the policy or is otherwise ultimately responsible for the payment.
Treasury’s proposed rule makes two clarifications as to the method for computation of the
threshold amount: (a) whether to measure losses before or after the effect of certification; and
(b) whether to include deductibles and similar arrangements linked to the insurance contract but
not part of insured loss.
2. 2
Impact of Certification
The first clarification serves to resolve an apparent circularity in logic that can occur with respect
to policies containing a standard terrorism exclusion. In the absence of a certification, a standard
terrorism exclusion (if attached to the policy) would not act to bar coverage. Accordingly, prior
to certification property and casualty insurance losses under policies containing a terrorism
exclusion would be payable and therefore count toward the $5 million certification threshold.
However, upon certification these exclusions become operative thereby baring coverage. In the
case of a small-scale act of terrorism, the post-certification operation of terrorism exclusions
could bring the total amount of payable loss under the $5 million threshold. In other words,
certification itself could seemingly disqualify an event from certification.
There are two ways to solve this problem. Either calculate losses before the hypothetical
application of any terrorism exclusions (as Treasury proposes) or calculate losses after the
hypothetical application of any terrorism exclusions. CBI strongly urges Treasury to implement
the latter approach which is the more advantageous to small businesses, insurer, and the
Program.
The Secretary’s decision to certify an act of terrorism carries with it two main implications: (1)
the backstop opens to reimburse insurers for insured losses in excess of their individual
deductibles; and (2) policyholders that did not take advantage of the program’s make available
requirement lose coverage for losses resulting from the attack.
Regardless of an insurer’s individual deductible, the backstop makes no payment to any insurer
until the $200 million dollar program trigger has been satisfied. While captives often have
program deductibles that could be satisfied with corporate pocket change, traditional insurers
have individual deductibles typically measured in the hundreds of millions and many times
billions of dollars. It is difficult to image a realistic terrorist attack scenario involving $5 million or
even $50 million of property and casualty insurance losses that implicates the possibility of a
payout under the backstop given the program trigger and individual insurer deductibles.
For small-scale attacks, the only practical consequence of the Secretary’s decision to certify an
act of terrorism would be the activation of terrorism exclusions. That is, certification of small-
scale events under the program does nothing but strip away otherwise available insurance
coverage to victims of the terrorist attack. Obviously, that outcome is undesirable for insureds.
Likewise, responsible insurers have no interest in denying coverage for losses from a small-scale
terrorist attacks that they can easily absorb and for which the Program is unnecessary.
Accordingly, Treasury should modify its proposed rule to make it less likely small-scale attacks
satisfy the threshold by counting only losses that would be payable after the hypothetical
application of any terrorism exclusions.
3. 3
Impact of Policyholder Obligations
The second clarification proposed by Treasury is intended to include “all losses associated with
property and casualty insurance policies” such as “policy deductibles or fronting arrangements”
in the computation of the $5 million threshold. This proposal, too, would make certification of
small events more likely resulting in less coverage available to victims. For that reason alone,
Treasury should abandon its proposed approach.
Moreover, the approach proposed by Treasury would be impossible to administer. With rare
exceptions, losses that are expected to remain wholly within a deductible are not reported to
insurers. In fact, policyholders often prefer not to notify the insurer of a loss falling below a
deductible amount out of concern reporting of the loss may count against it on renewal.
Accordingly, Treasury would have no means to collect the data necessary to tabulate the amount
of losses “associated” with property and casualty insurance but never reported to the insurer.
Further, policyholders would likely be unwilling to cooperate with any voluntary collection of
such data because the only outcome from reporting losses would be an increased likelihood of
certification with the resulting loss of coverage under policies with a terrorism exclusion.
For these reasons, Treasury should implement a rule providing clarification on the points it has
identified but doing so in a way that is practical and considers the best interests of potential
victims of terrorism, responsible insurers, and the Program. This could be done through the
following amendment to 31 CFR § 50.4(b)(2)(ii):
Property and casualty insurance losses resulting from the act, in the aggregate, do
not exceed $5,000,000. For these purposes, property and casualty insurance
losses consist of insured loss determined as if the act had been certified by the
Secretary.
Other Issues
Should Treasury decide to continue with the clarifications as proposed, CBI raises two concerns
with the wording.
Treasury has until now been careful not to use the expression “terrorism insurance” when
describing the coverage insurers are required to make available under the program. As explained
in 31 CFR § 50.22, an insurer may satisfy the make available requirement of the program by
offering coverage subject to general exclusions or other terms in the policy. Specifically, “if an
insurer does not cover all types of risks, . . . such as nuclear, biological, or chemical events, then
the insurer is not required to make such coverage available.” Accordingly, the regulations and
statute refer to a requirement to make available “coverage for insured losses that does not differ
materially from the terms, amounts, and other coverage limitations applicable to losses arising
4. 4
from events other than acts of terrorism.” 31 CFR § 50.21. While that may be an unwieldy
description of the make available requirement, it is more accurate than suggesting insurers must
offer “terrorism insurance” which could imply an affirmative grant of coverage.
Treasury’s commentary on this proposal seems to conflate the program’s treatment of
deductibles and “fronting arrangements”. The program has always been agnostic as to where the
ultimate economic loss falls. Instead, the program has looked to whether the loss is covered by
“property and casualty insurance” issued by an “insurer”. Amounts paid by the policyholder as a
deductible are not “covered” by the insurance while losses paid under a fronting arrangement by
an insurer probably are. Further, in first party insurance the policyholder is not thought of as
“responsible for the payment” of retained losses – the policyholder simply does not receive
payment from the insurer for that portion of loss. In fact, the policyholder may not make a
payment to anyone if, for example, it decides not to repair or replace the damages property.
Accordingly, the concept of “responsible for the payment,” if used, would not encompass first
party insurance deductibles as Treasury seems to contemplate.
Definition of Insured Loss
The proposed rule adds a clarifying exclusion to the definition of insured loss in 31 CFR §
50.4(n)(3):
(iv) Amounts paid by a policyholder as required under the terms and conditions of
property and casualty insurance issued by an insurer.
Treasury expresses in its commentary the sensible understanding that “insured losses ‘covered’
means insured losses paid by insurers under insurance policies within the scope of the Program.”
A policyholder’s own obligation to fund some or all of the loss is not considered “covered” by the
insurance policy and therefore should be excluded from the definition of insured loss.
It does not appear, however, Treasury’s proposed rule would accomplish this objective. An
appropriately crafted clarification is especially important and necessary because the Program is
awash in highly engineered financial structures specifically designed to optimize recovery from
the backstop.
For example, Treasury recognizes that under some insurance policies the insurer may be
obligated to pay a third party an amount falling within the policyholder’s deductible (e.g., a
deductible under workers compensation insurance). In such a case, the policyholder is
responsible to reimburse the insurer. Treasury reasons (in footnote 19) that if the policyholder
honors its obligation to reimburse the insurer, the deductible is not included within the definition
of “insured loss.” However, if the policyholder fails to reimburse the insurer for the amount paid
on its behalf the amount of the deductible is included within “insured loss”.
5. 5
In fact, the inability of an insurer to obtain amounts owed by its policyholder is a credit risk
assumed by the insurer in structuring the insurance policy, not an insurance risk assumed under
the insurance policy. The insurer is fully capable of managing its credit risks by demanding
collateral, a letter of credit or a bond. Congress did not enact TRIA because insurers were unable
to manage credit risk willingly assumed – but because of a need to stabilize the market for
insurance risk relating to terrorism. There is no reason an insurer’s mismanagement of its own
credit risk under complex financial arrangements should become the Program’s problem or be
passed onto small businesses, nonprofits, local governments, and other commercial
policyholders through policyholder surcharges.
Treasury’s proposed rule could undermine concepts previously established under the program.
For example, large policyholders may set up an onshore or offshore captive that issues
reinsurance of some or all of the risk under an insurance policy issued by an unrelated insurer.
Under 31 CFR § 50.71(b)(1), we have long understood in such a situation any reinsurance
recovery under such an arrangement would be disregarded for the purposes of the program
(unless deemed an easily avoidable “excess recovery”). Under the proposed rule, it may be that
reinsurance recoveries from a captive would be seen to reduce “insured loss” as “amounts paid
by a policyholder” especially if the reinsurance agreement is referenced in the policy or an
integral part of the insurance program. Another example where Treasury’s proposed rule may
unsettle previously settled concepts occurs with respect to retrospective premium arrangements
or similar loss sensitive programs. In such cases, Treasury’s proposed rule may be understood to
require reduction of “insured loss” to account for amounts the policyholder pays through ex post
premium adjustments.
Finally, it is easy to see how Treasury’s proposed rule could be gamed. For example, the insurer
and policyholder could establish a deductible arrangement through a side agreement purporting
to exist outside of the policy. Because the amounts to be paid by the policyholder would not be
under the “terms and conditions of the property and casualty insurance”, the insurer may feel
comfortable submitting the reimbursable amount to Treasury as “insured loss.” Such collusions
need not be complex. The insurer could issue a policy that simply waives collection of any
deductible in the event of a certified act of terrorism.
Treasury’s proposed rule heads in the right direction but does not and perhaps should not try to
contemplate the full range of sophistication, complexity and ingenuity within the bespoke
financial structures that dominate the Program. In the absence of supervision of unusual
transactions (or at least some kind of oversight over the underlying transactions to which the
Program is bound), Treasury must issue clear caution to contain aggressive financial creativity.
6. 6
The following amendments to the proposed rule would better clarify Treasury’s stated intent and
offer some protection against misuse of the program:
(iv) Amounts paid or payable by a policyholder as required under the terms and
conditions of property and casualty insurance issued by an insurer or under terms
and conditions of any other agreement related to such property and casualty
insurance (other than reinsurance); or
(v) Amounts that would have been paid or payable under paragraph (n)(3)(iv) if
the act had not been certified under the Program; or
(vi) Obligations of the insurer incurred or rights of the insurer foregone for the
purposes of avoiding the requirements of the Program.
Treasury may also wish to remind participating insurers of the availability to request general
interpretations with respect to specific structures and arrangements. 31 CFR § 50.8.