ISO Files Conditional Terrorism Policy Endorsements

Insurance Services Office Inc. (ISO) has asked state regulators to approve conditional commercial policy contract language to address terrorism coverage should Congress not extend the federal terrorism insurance backstop beyond its Dec. 31, 2005, “hard ending.” Congressional action to extend, modify or renew the federal backstop is reportedly uncertain.

The Terrorism Risk Insurance Act of 2002 (TRIA) was passed in the aftermath of the Sept. 11, 2001, attack on the World Trade Center and the Pentagon. It provides federal financial backing for insurance losses resulting from events certified by the Secretary of the Treasury as “acts of terrorism.”

As early as September 2004, insurers will begin taking action on policies with effective dates of Jan. 1, 2005, and later. These policies, some of which include terrorism coverage, have terms that extend beyond Dec. 31, 2005 — when the federal backstop may no longer exist. The disappearance of a federal terrorism insurance backstop will reportedly cause insurers to reevaluate their ability to cover terrorism.

The optional endorsements filed will reportedly help insurers and policyholders manage potential coverage problems posed by the Dec. 31, 2005, “hard ending” of the federal backstop by providing critical tools needed now to make underwriting decisions on terrorism coverage in an uncertain post-TRIA environment.

ISO filed the conditional endorsements under its commercial lines programs for regulatory approval in all jurisdictions. The endorsements provide participating ISO insurers several options including:

* A total exclusion of losses from acts of terrorism,
* An exclusion for losses resulting from acts involving nuclear, biological or chemical terrorism, and
* A means to cover terrorism losses not otherwise excluded up to a sublimit (a lesser amount than the full policy limit).

These optional, conditional endorsements will be available for use on policies with terms that extend beyond Dec. 31, 2005. If the federal backstop expires, the terms of the endorsements become applicable on Jan. 1, 2006, and would apply to any losses that occur on or after that date. The endorsements will also take effect if the backstop is extended, but increases insurers’ share of losses or risk of loss from terrorism events.

These conditional endorsements are being filed now to reportedly give insurers sufficient time to make any necessary changes in their operational systems.