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NEW YORK CITY-President Bush is reportedly passing the much talked about Terrorism Risk Insurance Act of 2002 tomorrow at 9:45 a.m., effectively voiding all prior policies excluding terrorism coverage. Once the bill is inked, insurance companies must immediately begin offering the coverage. They officially have 90 days to send written communication to all clients explaining the new premiums.

Late last week, Joel Wood, senior VP of government affairs for the Council of Insurance Agents and Brokers, joined Warren Azano, VP of government affairs for insurance carrier the Hartford Financial Services Group Inc., on a panel discussing the legislation. The overall consensus of panelists at the event, which was sponsored by Kaye Insurance Associates, was that the immediate transition to the new terrorism insurance policies would prove to be “chaotic” at best.

“This bill will have immediate impact,” said Wood, adding that insurance companies must instantly begin calculating new premiums for all policies that previously excluding terrorism coverage. Companies have 90 days to inform all clients of their new premiums; at which time, the client must accept or reject the new rates within 30 days upon receipt of the statement.

All clients will be entitled to the coverage; however, “there are no restrictions on the rates the insurer can charge. The sky is the limit,” Wood added. While large urban buildings, or those properties considered to be targets (such as Disney World), may still end up paying exorbitant rates–ultimately the legislation is expected create more competition in the insurance industry in regards to terrorism coverage. This should keep premiums at a manageable level, Wood indicated.

Smaller buildings in low-risk locations that had foregone terrorism coverage since the rates skyrocketed post Sept. 11 are expected to fare best under the new legislation, according to the panel’s moderator Bruce Guthart, chairman and CEO of Kay Insurance. Most banks will now expect buildings to have the coverage now, Guthart explained, noting the rates will be more reasonable.

To refuse terrorism coverage, clients must send a signed document to insurance carriers formally rejecting the new premium. Those customers that previously had no terrorism exclusions from their policies will be unaffected by the new legislation, Azano said.

During the panel discussion, two interesting glitches with the legislation surfaced. First, the act only includes international terrorist acts on the United States, not domestic terrorism. Determining where the act of terror originated will the responsibility of the Treasury Dept. along with input from the Secretary of State and the Attorney General. “It’s not always going to be clear, but my sense is that they will not get hung up on technicalities,” said Wood, who’s been lobbying for insurance companies for 14 years.

Additionally, prior to Sept. 11, most insurance policies excluded acts of war, which could create confusion. “The bill covers acts of terrorism, not war,” said Azano. How the two will be differentiated, “has yet to be seen,” he added.

Terms of the federal backstop call for the government to cover 90% of terrorism claims beyond the $10 billion mark, with a maximum of $90 billion. The legislation is a two-year deal with the option of a one-year expansion.

Will lobbyists battle to extend the length of government intervention beyond the three years? Wood says no. “I don’t think Congress wants to see us again for awhile,” he explained. “We’ve calmed concerns of government officials who thought we’d try to make this a permanent thing.”

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