March 2003 - American Bonanza Society

TRIA: What is it? What should I do about it?SY JOHN ALLEN, FALCON INSURANCETwo recurring questions on many of our clients' lipsthis past month have been: "What is this TRIAbusiness?" and "How am I supposed to answer theletter I just received about it?"TRIA is an acro nym for the Terrorism Risk InsuranceAct of 2002. We discussed this subject last month, advisingreaders that more informat ion wou ld be coming aboutthis new congressional act. Well. the letters are arrivingand so are the quest ions.What is it?This is an act mandating that all insurance carriersprovide their commerc ial pol icyholders with terrorismcoverage as defined by the Act. It is most insurance carriers' opinion that this includes all aviation policies as wellas property, general liability, wo rkerscompensation coverage and certainother forms of insurance.What this means to the ASSmember is that by government edict.your aircraft hull and liability exposurewas insured for terrorism coverageas of November 26, 2002. TheAct basically stated that your insurancecarrier must cover terrorismlosses that happen domestically justas they do any other loss under theIf you expect a terrorismloss to involve generalaviation aircraft as aclass or your aircraftspecifically, then certainlyyou should consider purchasingthe coverage ifyou do not have war andallied perils coverage,policy. This means no spec ial cancellationconditions and no differingconditions than any other perils insured under the policy.Insurers had a February 24 deadline to notify all oftheir policyholders by lener and explain the pertinent conditionsof the act to them. The insurance carriers maycharge for this coverage and most are doing so. Eachinsured is given 30 days to respond to the offer and thenthe offer will expire.What should I do about it?When you receive the letter. it will advise you thatthe government is partially reimbursing the carrier for anyclaims they might pay under this Act. It wi ll state youroptions with regard to the coverage and advise you of thedeadline to pay the premium.At this writing. it does not appear that the carrier isobligated to offer the coverage to you again unril yournext renewa l. So if a war begins in the next few months.it may be too late to elect to accept this coverage untilyour next renewal.The definition of terrorism under TRIA is differentthan that under what is now available for war risk coverage.The Act defines terrorism as an act that must takeplace in the United States, or on a U.S. mission, U.S.vessel or U.S. air carrier. It is further defined as an actcommitted by an individual or individuals acting onbehalf of any foreign person or foreign interest.War risk coverage is available to ASS membersthrough most carriers now and in most cases is broaderthan that offered under TRIA but likely a bit more expensive.War risk coverage has always covered war, hijacking,confi scation and terrori sm- both foreign and domestic.The term "war" in this coverage does not include warbetween the major powers nor does it mean a nuclear war.Further, the cance llation clause is only seven days for thisportion of the war policy.If you have a/ready purchasedwar risk and allied perils coverage.you have a cenain amount of terrorismcoverage for both foreign anddomestic acts. TRIA gives a longercancellation period or possibly eliminatesthe possibility that the coveragecan be cancelled altogetherdepending on your individual stateinsurance regulation . It also treatsthe coverage as an occurrence ratherthan an aggregate limit. The coveragemust be offered to the insured onrenewal of their policy.Certain states are taking the position that terrorismexclusionary wording should not be reinstated. If thisposi tion stands. it wi ll place insurance carriers in a furtherdilemma. Let 's not mince words, the insurance industrywas not part of thi s proposed legislation and they do notunderstand it. Certain insurers feel that terrorism is anuninsurable peril that should be solely born by the federalgovernment.The question asked of Falcon is: "Do I need this coverage?"The answer is: I f you expect a terrorism loss toinvolve general aviation aircraft as a class or your aircraftspecifically. then certainly you should consider purchasingthe coverage if you do not have war and allied perils coverage.Most insureds do not unless they go outside the countryor are required to do so by their lienholder.However, a fundamental rule of risk management isthat you should never risk "a lot for a little." This obviouslymeans that you should not take a big risk for a smallpremium. If an insured is allowed to purchase the liabili-COli/iI/lied 01/ page 7740. •Page 7738ASS March 2003