AAIS Prepares to File New Terrorism Endorsements

June 24, 2004

The American Association of Insurance Services (AAIS), a national insurance advisory organization, announced that it is preparing a countrywide filing of new terrorism endorsements insurers can use in anticipation of the scheduled termination of the federal terrorism reinsurance program.

AAIS said its new terrorism endorsements were finalized following a conference call involving AAIS product specialists plus representatives of state insurance departments, the National Association of Insurance Commissioners (NAIC), and the U.S. Department of the Treasury.

The Treasury Department administers the Terrorism Risk Insurance Program (TRIP), which is currently scheduled to “sunset” on Dec. 31, 2005. In anticipation of that, AAIS has prepared a series of commercial lines endorsements with exclusions that would take effect if the program terminates or is substantially changed. Equivalent endorsements have been prepared with respect to commercial coverages provided under farm policies.

In all of the endorsements, the definition of “terrorism” would, upon termination of the federal program, automatically revert back to the definition that prevailed before the program was created. This means that the new endorsements would make no distinction between domestic acts of terrorism and those carried out by foreigners or on behalf of foreign interests.

The new endorsements fall into two basic categories: “conditional” terrorism exclusions and “post-TRIP” terrorism exclusions.

“Conditional” terrorism exclusions could be attached to policies that run from 2005 into 2006. These endorsements would exclude coverage for terrorism losses if the federal program terminates as scheduled. They would also take effect if the program is changed to redefine “terrorism,” increase a carrier’s exposure, or impose requirements for terrorism coverage that differ from terms that otherwise govern coverage, and if current requirements to make coverage available no longer apply.

For each policy, carriers could choose a conditional exclusion that excludes losses from all types of terrorist acts, or one that excludes only losses from terrorist acts involving nuclear, biological, or chemical (NBC) attacks.

The post-TRIP terrorism exclusions provide the same choice between excluding all terrorism losses or only NBC losses. The post-TRIP exclusions are for use with polices that would take effect after the federal program terminates or is changed as described above.

There are versions of the conditional and post-TRIP exclusions that preserve coverage for physical damage from fire that results from terrorist acts, as required in certain states.

If the federal program is continued as currently structured, certain exclusions within the new AAIS endorsements will not take effect. Existing language developed to meet requirements under the federal program will continue to be in effect.

For additional information, contact Joyce Tignino, vice president of marketing and industry relations, at joycet@AAISonline.com, or by calling (800) 564-AAIS.

Note: This AAIS e-mail, including attachments, may contain confidential, privileged, or copyrighted information and the sender does not waive any related rights or obligations. Any unauthorized distribution, use, or copying of this e-mail or the information it contains is prohibited.

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