Treasury to survey buyers on terror insurance market; Congress to consider poll results in evaluating TRIA.(News)

Byline: MARK A. HOFMANN

WASHINGTON-Risk managers should keep a close eye on the mailbox starting this week.

That's because selected risk managers will receive questionnaires from the U.S. Treasury Department concerning the state of the terrorism risk insurance market, said Mark J. Warshawsky, acting assistant Treasury secretary for economic policy. Insurers and reinsurers-but not agents and brokers-will also receive the surveys. "We basically wanted to get at the primary components of the market-which is the buy side and sell side''-or risk managers and underwriters, Mr. Warshawsky explained.

Not surprisingly, the Risk & Insurance Management Society Inc. is urging any members who receive the survey to respond to the document. As RIMS President Lance J. Ewing noted, the results of the survey could help determine whether the federal government continues its terrorism risk insurance backstop program, which is scheduled to end on Dec. 31, 2005.

The backstop allows the federal government to pay for some of the losses of a truly catastrophic future terrorist attack. The program was designed to give insurers time to devise a commercial market solution to handling the exposure.

A section of the Terrorism Risk Insurance Act-which created the government backstop-also requires Treasury to provide Congress by June 30, 2005, with a report on the effectiveness of TRIA, the availability of terrorism risk insurance for various classes of policyholders and the insurance industry's probable terrorism capacity after the federally backed terrorism insurance program ends that year.

TRIA also requires Treasury to compile information on terrorism risk insurance premiums annually. To meet these requirements, the Treasury Department has contracted with Rockville, Md.-based research firm Westat to conduct confidential surveys of risk managers, insurers and reinsurers to get a picture of market conditions.

According to Mr. Warshawsky, policyholders will be chosen at random to get a nationally representative sample of both public and private entities. Questions will involve pricing of coverage, demand for the coverage, other means of financing terrorism-related losses and loss control measures taken to mitigate the risk. Treasury will ask the participants to report the same information over three time periods.

The first survey-which will gather data for 2002 and 2003-is slated to begin this week and last through Feb. 15, 2004. Subsequent surveys are planned for April through June 2004 and January through March 2005.

"The actual number that will go out is not known,'' said Mr. Warshawsky. He said Treasury has set a response target that he can't reveal.

He said participants will receive a letter that announces the survey, then a follow-up with a paper copy of the survey itself. He added that there's a possibility that participants will be able to answer the questions at a Web site.

Mr. Warshawsky stressed that all information will be kept confidential. It is "extremely important'' that all identifying information be scrubbed. Some companies will view the information requested as "extremely sensitive,'' he said.

"We will see the results that we need to see in terms of the overall condition of the market,'' he said.

"It's ideal for the study to be as representative as possible,'' Mr. Warshawsky said. Treasury wants companies to respond even if they are not purchasing terror risk insurance. "We want to know why they're not doing it,'' he said.

Risk managers, insurers and reinsurers all welcomed the survey.

"Obviously, it's important to us because the window of time is getting narrow'' in regard to whether TRIA will continue, said RIMS' Mr. Ewing, who is executive director-risk management for Park Place Entertainment Inc. in Las Vegas. "The input of risk management professionals will be critical as to how this risk will be evaluated, insured or financed. RIMS also wants to make sure that we have a seat at the table and not just carriers,'' he said.

As the surveys arrive, RIMS will be sure that any member who receives one realizes that he or she is becoming "a bellwether in regard to the future of this coverage,'' he said.

"Our hope is that the final product is something that is useful in analyzing availability in the private terrorism insurance market and in the context of TRIA,'' said J. Stephen Zielezienski, vp and associate general counsel of the American Insurance Assn. in Washington. "Hopefully, that will help the government and the industry decide the level of federal involvement that's necessary to insure that terrorism risk is adequately manage.''

"Clearly, everybody will benefit from clearly understanding the insurance marketplace in the real world, so the survey would appear to provide Treasury and the rest of us with insights about what's going on out there in the terrorism marketplace,'' said Franklin W. Nutter, president of the Reinsurance Assn. of America in Washington. "My hope, like others, is that this will be part of an effort by Treasury to truly evaluate the program.''

"We all-I mean government, public policymakers, the industry and buyers-are going to be faced with the question of whether TRIA should be continued or modified or sunset. Therefore, a baseline study and a continuing survey'' should be very influential, Mr. Nutter said.

He noted that though producers are not included in the survey, the Washington-based Council of Insurance Agents & Brokers has been asking members about the terrorism market as it conducts its commercial insurance market surveys.

"We've been working closely with Westat to make sure that the survey asks the right questions and hits the right people,'' said Coletta Kemper, the CIAB's vp-industry affairs. "We think it's a very valuable study. We think it's important because we already do a study of the brokers. It's important that the companies and buyers be surveyed because it's important to find out what they're thinking. The brokers are an important part of that, and the Council has surveyed them on that issue over the past year.''

"It's possible there will be survey of brokers in the future,'' she said, adding that not surveying brokers in this effort does not mean there will be a "hole in the information.''

Mr. Warshawsky said that Treasury expects to receive the first round of results next spring. That "doesn't necessarily mean that those will be made public'' immediately, though, because the second round will be carried out so soon after the first round, he said.