by Jon Doolittle
First there was Y2K, then the Privacy Act, then the cancellation of war risk coverage. And now the latest: The Terrorism Risk Insurance Act of 2002, or to those of us who have to say it a hundred times or more a day, TRIA.
TRIA is a government act that took effect November 26, 2002. As of that date, by government fiat, your insurer is providing you with coverage for damage to your airplane or liability arising from terrorist acts. In return, the government agrees to partially reimburse insurers for losses.
As this is written, you have this coverage because the government said so. Of course, governments, like insurance companies, love fine print. An act of terrorism as defined in the Terrorism Act must be certified by the secretary of the treasury, presumably because he has to pay for it.
It must also take place in the U.S. or on a U.S. air carrier, U.S. vessel or at a U.S. mission. It must also be an act committed by an individual or individuals acting on behalf of any foreign person or foreign interest… TRIA does not cover acts of domestic terrorism.
Insurers have been given 90 days in which to notify all of their policyholders that they have this coverage and the cost for it if they wish to keep it. The applicability of the act is not entirely clear. Its meant for commercial insurance but depending on how you read it, it may include all aviation policies. As a result, most aviation insurers are sending notices to all their policyholders to make certain that theyre in compliance.
So what are you getting?, you wonder. We sure did, so we called around. What immediately became clear-sort of-is that the government gave the insurance industry little time to think about this act. There seem to be more questions than answers out there, but heres what we learned.
Damage or injury caused by terrorism is part of the customary war risk exclusion. If you already carry war risk coverage, you almost certainly have coverage for war, highjacking, confiscation and terrorism, both foreign and domestic.
War risk coverage is subject to fairly strict cancellation provisions. In most cases, war risk insurers can cancel your war coverage within seven days or less. So while the coverage is broad, insurers can withdraw it on short notice.
What most of us operating light airplanes are getting under TRIA depends mostly upon whether or not we buy war risk coverage already. If you dont, then the TRIA coverage your underwriter will shortly be offering you will cover you for damage to your airplane and liability caused by a defined terrorist act involving your airplane.
This is coverage that you didnt have before November 26. In addition, your carrier will not be able to cancel your insurance other than as already provided in your policy. This usually means that the company will have to give you 30 days notice before canceling this part of your coverage, unless you forgot to pay them, in which case its 10 days. If you already purchased war risk coverage, you already have coverage for terrorism, whether foreign or domestic. TRIA coverage provides you with a longer cancellation period for terrorist acts as they are defined in the act and nothing else. It doesnt cover any other type of damage or injury caused by war, confiscation or any of the other things included in customary war risk coverage.
Once we figured out what it would cover, we asked insurers what this coverage would cost. Because of different points of view and reinsurance arrangements, insurers are taking different approaches to how much they charge for TRIA coverage.
Theres no historical data for them to use in making pricing decisions. Global Aerospace, formerly known as Associated Aviation Underwriters, is levying a flat charge of $100 on each aircraft it insures, whether the airplane carries war risk insurance or not. USAIG is charging separately for the hull and liability portions. The cost for TRIA coverage with this carrier on light airplanes is $.05 of premium for each $100 of the airplanes value for the hull portion and $50 for each million dollars of liability coverage you carry.
For a $200,000 airplane with a $1 million limit of liability, the TRIA premium will be $150 if the airplane doesnt carry war risk coverage already. If war risk coverage is on the policy, the hull portion will be waived, lowering the cost to $50. Other companies have yet to weigh in.
If you elect not to purchase TRIA coverage, your premium and your coverage will return to exactly what they were before the act was passed, no matter who your insurance company is. Most of the carriers are sending return envelopes so that you can let them know of your choice. If you do opt to purchase the coverage, you need to let them know and pay the premium within 30 days of the date the letter was mailed to you.
Is it worth the money? We dont know. Buyers of this option have no more information on which to base their decision than the providers. While the TRIA charges are fairly minimal, most light aircraft owners are not carrying war coverage now.
We believe that if you have terrorism concerns, you should look at the cost of buying full war risk coverage, which not only covers terrorism as defined by the new act, but also domestic terrorism, war, highjacking and confiscation by a government agency, such as Customs.
If you carry this coverage already, either because your lender requires it or because you fly outside the country regularly, the only benefit of buying the TRIA coverage is the longer cancellation period for TRIA-defined acts.
Once all the dust settles, we predict that those people who do not carry war risk coverage will elect not to purchase TRIA insurance because they dont think they need it. We also think that those people who already carry war risk coverage will elect not to buy TRIA because the war coverage they have is, in most ways, except for cancellation, broader already.
While TRIA may help other sectors of the insurance industry, we dont think it will have much impact on light general aviation airplanes once the dust settles. Youll need to make your own call when the envelope arrives.
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Jon Doolittle is an Aviation Consumer contributing editor. He owns Sutton James Insurance in Hartford, Connecticut.