NJCRIB Notes Complaints on AIG Terrorist Risk Charges

October 9, 2003

New Jersey’s Compensation Rating and Inspection Bureau has released an advisory bulletin noting that it has “been receiving complaints from agents and insureds that the AIG companies have been applying a Terrorism Risk Charge of 3 percent of premium rather than the established 2 cents per hundred dollars of payroll to its policies as required by the Manual.”

The announcement noted: “The Federal Terrorism Risk Insurance Act (TRIA) partially preempts state law and allows for individual carriers and or Rating Bureaus to file with State Insurance Regulators a specific terrorism risk charge which is subject to subsequent regulatory review to determine if the charge is excessive, inadequate or unfairly discriminatory.

“On behalf of its member carriers, NJCRIB filed with the New Jersey Commissioner of Insurance and received approval of a mandatory Terrorism Risk Charge of .02 cents per $100 of total policy payroll, effective January 1, 2003.” The provision was duly noted in the Bureau’s inspection manual, and members are required to comply with it.

The Bureau and New Jersey’s Insurance Commissioner “have advised AIG that this method of calculating the terrorism charge on policies written for New Jersey employers is unfairly discriminatory and is in violation of 3:9 of the Manual rules. The company was thus directed to comply with the Manual rule,” said the bulletin.

According to the Bureau’s announcement AIG responded that the company’s “need to fund their deductible under TRIA cannot be met using the 2 cents terrorism charge and they believe they are legally justified under the Federal Terrorism Risk Insurance Act to continue using the method they have chosen, specifically 3% of premium. In addition, AIG has informed the Bureau that they will apply the 2 cents per $100 of payroll methodology to residual market business, but not to voluntary business.”

The Bureau said it “is working with the Commissioner to determine what action, if any, may be taken to resolve this matter.” It advised “Producers and others when faced with a 3% of premium TRIA charge to refer AIG and any other carrier, to the approved Manual provision (2:1-3) setting forth the approved 2 cents per $100 of payroll.”

It also noted, “Agents and insureds may, at their discretion, accept a terrorism risk charge not in compliance with the Manual subject to a potential subsequent adjustment resulting from any enforcement action that may occur, and asked that “any instances of the use of a TRIA charge not in compliance with the Manual be referred to the Bureau in writing.”

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