TRIA

xQEDx

In the BattleCards, number 17 for this article, the triggers for payment were as follows:

 TRIGGERS:

|1] act must be certified as terrorism
|2] >100m aggregate insurer losses for (federal-private) sharing
|3] deductible = 20% of annual premiums must be met before federal payments begin

However, in BattleCard 22, we say that arguments TRIA is not insurance are:

• insurers don't pay premiums until a loss occurs
• provides universal coverage and is subsidized through taxation

My question is if we say that insurers don't pay premiums until a loss occurs, does this mean that the point above about the deductible referencing annual premiums means the annual premiums are not actually paid until the loss? Just trying to understand if above the annual premium is not something being paid (until a loss).

Thanks!

chrisboersma

Each insurer is responsible for paying out a certain amount in claims—known as its deductible—before receiving federal coverage. An insurer’s deductible is proportionate to its size, equaling 20% of an insurer’s annual direct earned premiums for the commercial property/casualty lines of insurance specified in TRIA.

RE: insurers don't pay premiums until a loss occurs

It's referencing the fact that the government (or in this case the re-insurer) doesn't actually collect ANY premiums from the underlying insurer, but provides coverage should a loss occur.

The insurer will collect premiums from the customer and the insurer gets what is effectively free reinsurance until such a date as there is a loss.

The 20% deductible is based on ALL of the insurer's premiums (collected from insureds) and not just terrorism coverage. All commercial coverages combined. (If a insurer writes $2B of insurance they need to pay a $400m deductible before participating in the terrorism program after a loss).

graham

Thx chrisboersma. Well said. (The BattleCard was unclear. I've edited it.)

xQEDx

Makes sense! Thanks

Francois

Just to be sure :
The insurers NEVER pay premiums, but act as intermediaries for the payment of premiums (recoupment) from the insured to the govt.

The insured would see on his contract :
Premium for terrorism insurance (Collected by insurer, kept by insurer, to provide for costs associated with the coverage)
Recoupment costs (Collected by insurer, sent to Govt, to recoup the costs of a past payment)

javid

Yes, that is correct