AAIS Seeks Clarification from Treasury on Status of Rental Dwellings and Farms

The American Association of Insurance Services (AAIS) is asking the U.S. Department of the Treasury to clarify recently issued terrorism reinsurance regulations as they apply to certain rental dwellings and farm exposures.

Larris Larsen, AAIS director of compliance and state filings, requested the clarifications in a letter submitted during the public comment period provided for in Treasury rules issued Feb. 25 to implement the Terrorism Risk Insurance Act of 2002. The act, passed in November, created a federal program for reinsuring commercial insurance losses arising from certain acts of terrorism.

The letter, along with AAIS product bulletins and other information related to the federal terrorism program, can be seen at www.AAISonline.com. Click on the icon for “Terrorism: The New Rules.”

In his letter, Larsen asks the Treasury Dept. to affirm whether insurance policies covering one- to four-family rental dwellings are considered commercial insurance, and therefore covered under the program, or personal insurance, not covered by the program.

“These policies cover buildings used primarily for personal, family, or household purposes, which . . . constitutes personal insurance” under certain provisions of the regulations, Larsen writes. “However, these buildings are typically owned for business purposes (to generate income), which constitutes a commercial interest.”

Regarding farm exposures, Larsen asks the Treasury department to affirm that all coverages provided by farm policies are commercial coverages covered under the federal reinsurance program. As it is, the Treasury regulations suggest that farm premium be apportioned between commercial and personal property covered by the policy.

In his letter, Larsen states that policyholder notices and offers of coverage mandated by the act have been developed to address farm risks as a whole, without distinguishing between personal and commercial property.

“The risk of loss to the farm residence and its contents as a result of a certified act of terrorism is inextricably linked to the risk of loss to other buildings and property on the premises,” Larsen writes. “We believe all property and liability exposures insured under a single [farm] policy should fall within the commercial lines of insurance addressed by the [federal act].”