Comment from Reynold Becker, Property Casualty Insurers Association of America

Reynold E. Becker Vice President, Global Issues and Research October 30, 2008 Howard Leikin, Deputy Director Terrorism Risk Insurance Program Public Comment Record, Suite 2100 Department of the Treasury 1425 New York, Ave., NW Washington, DC 20220 Re: TRIA Cap on Annual Liability Proposed Rule Comments, 31 CFR Part 50, RIN 1505-AB92 Dear Howard: Thank you for the opportunity to provide comments regarding the proposed pro rata claims allocation provisions of the Terrorism Risk Insurance Program. PCI supports the Treasury Department approach of adhering to general insurance industry practices in the development of this process. After reviewing the proposed rules, we suggest the following for your consideration with regard to workers compensation claims: • Determine Pro Rata Loss Percentages (PRLPs) under Section 50.92(a) on a “claim”, rather than a “policy” basis. o Unlike property insurance policies, workers compensation losses can involve hundreds or thousands of claimants from the same event at the same location. o Workers compensation claims are often, by their nature, “long-tail” obligations. Further, workers injured during the same event may receive partial payments in differing amounts or on different schedules. o Using a “policy”, rather than “claim”, basis for pro-ration may provide for ease of auditing at a macro level. o However, using a “policy” basis for proration can produce effective PRLPs on a claim basis that are different from the promulgated PRLP. For example, in Scenario 1, one claimant receives 92% of the full insured loss, while the other receives just 58%. o Applying the PRLP on a claim basis would avoid subsidization of some claimants at the expense of other workers insured under the same policy. • Provide additional flexibility for handling partial payments vs. the final claim settlement amount under Section 50.93(a). o “Estimated” and “actual” final claim settlement amounts may differ significantly. o As indicated before, workers compensation claims are often, by their nature, “long-tail” obligations. As indicated in attached Scenario 2, life expectancies can affect the amount of estimated settlements. o However, actual mortality may differ from original assumptions, and produce unexpected results. Additionally, the issue is not limited to mortality cases. Similar results could be produced by a faster than expected medical recovery and/or an earlier return to work by the injured worker. o These situations may result in unfairness to the insurer if not fully reimbursed under the Program. o Thus we recommend adding the following language: “However, in the event that the actual final claim settlement amount is less than the most recent estimate, or in the event that the most recent estimate is less than the previous estimate, then the pro rata share for that loss is the greater of the amount already paid or the amount computed by applying the PRLP to the estimated or actual final claim settlement amount.” We look forward to working with you to address these issues. If you have any questions, please contact me. Sincerely, Reynold E. Becker 847-553-3803 rey.becker@pciaa.net Attachments RB/bw