It looks like Congress may actually do something about terrorism insurance. The government insurance program, set to expire at the end of this year, provides reinsurance for property and casualty lines (property, workers comp, auto) when claims are incurred as a result of foreign terrorists. After a high deductible, the government kicks in to pay most of the remainder.
The coverage, known as TRIA for Terrorism Risk Insurance Act, came into being shortly after 9/11 on a temporary basis. The reasoning behind TRIA is simple – no single insurer, nor the industry as a whole, has the financial resources to pay claims for a catastrophic terror event – think nuclear bomb in New York City, or exploding natural gas tanker in Boston.
This is a big deal. Insurance companies specifically exclude terror coverage whenever they can; property insurance is one that is particularly vulnerable to concerns about attacks. A group of 28 governors has joined together to pressure their Congressional delegations as well as the Bush administration for extension of TRIA.
For over a year, insurers had hard to get coverage extended, to no avail. The Bush administration wanted the industry to pay very high deductibles, so high that many industry experts viewed the “insurance” as little more than picking up the pieces after the industry was bankrupt. Now, news has come out that a compromise is under serious discussion in the House Financial Services Committee.
According to Insurance Journal;
“The extension proposal creates so-called “silos” for major coverage areas of workers compensation, property, casualty and NBCR (coverage for nuclear, biological, chemical and radiological attacks), with each silo being assigned its own deductible. The measure excludes commercial auto, which is now covered under TRIA, while proposing to add group life. Insurers would be required to offer NBCR coverage.
Federal intervention would be triggered only if losses exceed $50 million in 2006 and $100 million in 2007.
In the new plan, the distinction between foreign and purely domestic acts of terrorism would be removed so that domestic terrorism would be covered.
The co-share paid by insurers, which is now at 10% for all triggered events, would increase for smaller events and decrease for so-called mega events, with a 20% co-share for the first $10 billion down to 5% for events more than $40 billion.
Insurers would pay back any federal monies through policyholder premium surcharges that would be capped at 3%.”
Sounds workable, but there is one major problem; the term of the new TRIA is two years, so we could very well find ourselves back at this in a year, worried about the potential implications of a soon-to-expire law.
The good news is Congress may actually get something done; the bad news is they seem to have forgotten the old saw “if you don’t have time to do something right the first time, what makes you think you’ll have time to fix it”

More on Pat Ryan, CEO of Aon Corp., and his comments at the IRMI conference earlier this week.
Ryan spent a fair amount of time commenting on the Spitzer investigations and impact thereof. He noted that the sheer time and resources required to respond to the Attorney General’s inquiries, along with the potential for ongoing negative press, played a large part in Aon’s decision to settle the case.
Ryan also noted that Aon has embraced the concept and reality of transparency, wherein all clients would know exactly what Aon was being paid and by whom for what work. Aon has abandoned the contingent commission revenue model, which has led the company to increase fees to some customers.
His comments on transparency and Aon’s commitment to same were direct, comprehensive, and revealing. Ryan clearly understands that the landscape has changed, that the old ways of doing business are no longer acceptable, and that Aon must operate within the new reality created by Spitzer and other outside forces.
Ryan noted that while the risk managers who are his firm’s main contacts were not concerned about the contingent commissions, their bosses were. Evidently Ryan heard directly from the CEOs and CFOs that they did not like the practice.
He predicted that there will be more, not less, regulation in the future, noting that “we are in the fourth inning”. Here’s hoping we aren’t tied at the end of nine…
What does this mean for you?
While I am frustrated at Ryan’s failure to mention health care costs and medical trend, his comments indicate a keen awareness of the importance of transparency and direct dealing. That is to his and his company’s credit.

I have just returned from IRMI’s excellent Construction Risk Conference in Las Vegas. Interesting location for a bunch of risk averse people…
One of the keynoters was Pat Ryan, founder and chair of Aon Corp, the big broker. He gave a talk covering a wide range of topics, including Spitzer, contingent commissions, and transparency. What was notable to me was what he did not discuss, or even mention – health care costs.
I find this intriguing for a couple of reasons. First, what is more important today than health care costs? Health care costs are contributing to his clients’ risks in employee benefits, workers comp, auto, general liability etc. And, medical expenses in the property and casualty lines are increasing at a rate substantially faster than in group health (10-12% v. 8.2%). What could be more important, more significant, than health expense inflation?
Second, Aon is making a big push to become the expert in data mining, analytics, and assessment to better predict and manage “risk”; broadly defined. In this context, risk could include flood, wind, politics, etc. Since our focus here is on health care, we’ll stick to that. Unfortunately, Aon’s attempts to date to assess and evaluate medical expense in the workers comp world, at least the public reporting of same, reflect a dangerously superficial understanding of medical expense, providers, practice pattern variation, etc. (note – sources indicate Aon’s understanding is not any better when presented in private meetings..).
If this initiative is so important to Aon, why would it not be part of a speech to 1500 eager listeners, and why would it not incorporate even a mention of what Aon is doing to help customers deal with this to-date-unmanageable problem – health care cost inflation.
If Aon is all about managing risk, it better learn something about medical expenses soon. And the company sure can do a better job in presenting itself as an expert in same.
What does this mean for you?
Watch out for consultants that don’t understand what is really driving your claims costs.