24 May 2022USA analysis

SIIA: captives can help TRIP

The Self-Insurance Institute of America (SIIA) has submitted comments to the Department of Treasury in response to its request for comments on its 2022 report on the effectiveness of the Terrorism Risk Insurance Program (TRIP).

The comments, written by Ryan Work, senior vice president, government relations at SIIA, are in response to various questions asked by the Treasury relating to the participation of captive insurers in TRIP, in addition to emerging trends.

SIIA said that a well-functioning program to encourage risk protection related to terrorism losses continues to be essential, considering the ongoing and evolving threats faced by the private sector. The insurance and reinsurance markets for risks within the United States continue to evolve, with captive insurance arrangements providing stability and affordability in areas where the commercial insurance/reinsurance markets are not providing sufficient coverage options for businesses.

According to SIIA these captive arrangements support an affordable market for terrorism-related risk mitigation and help broaden participation in offering needed terrorism coverage for a variety of organisations. In particular, the current state of the market has resulted in organisations utilising captive insurance to insure against risks in high-risk geographical areas, including urban centres and areas in proximity to nuclear facilities or other high-risk facilities; various types of properties, including sports facilities and other public venues; various industries, including residential real-estate, transportation, telecommunications, and utilities and finally NBCR Terrorism Risk

SIIA points out that: “As the Department knows, entities that choose to self-insure their own insurance risks are responsible for any economic loss associated with insuring that risk, while a captive insurance arrangement allows a business or entity to finance a portion of the risk they choose to take on themselves. In some cases, entities that cannot find sufficient or affordable coverage for a particular insurance risk in the fully-insured commercial market - such as terrorism or cyber risk - are self-insuring these risks, often times by financing the risk through a captive.

“Captives can serve either as a direct insurer in the cases of certain terroristic, cyber, and even COVID-related risks or a reinsurer of a standard commercial carrier (e.g., in cases related to workers' compensation insurance).”