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What is TRIA?

The Terrorism Risk Insurance Act, created by Congress with strong bipartisan support in the wake of the Sept. 11, 2001 terrorist attacks, is a piece of legislation that has enabled the private insurance markets to provide an essential type of coverage that otherwise wouldn’t exist; has helped to create thousands of jobs; has cost next to nothing; and incentivizes the private markets to take a first loss position in the event of another terrorist strike. It is legislation that works and that can be embraced by individuals throughout the political spectrum. 

Why was it enacted?

Terrorism risk insurance provides economic protection against terrorist attacks on people and property. Following the tragic attacks of 9/11, reinsurers withdrew from the terrorism risk insurance market, forcing insurance carriers to exclude terrorism coverage from business policies leaving policyholders exposed and stalling economic activity. The lack of terrorism risk coverage resulted in 300,000 jobs lost; the delay or cancellation of over $15 billion in real estate transactions in 17 states; and a 6 year low in commercial construction. Since 2002, TRIA and its subsequent extensions have provided continuity to the marketplace so that policyholders American businesses large and small are able to obtain the insurance coverage they need to manage terrorism risk, grow their businesses, create jobs, and protect the workers they employ.

Wasn’t TRIA intended to be temporary?

While TRIA was originally intended to be a temporary measure a bridge to a time when reinsurers returned to the marketplace reinsurers remain unable to accurately measure the type, frequency and potential losses from a large-scale terror attack. An analysis by Bloomberg Government indicated that “there is no reason to assume that reinsurers will re-enter the market if the TRIA program expires, and every reason to assume that the availability of coverage will fall.”

How does TRIA protect taxpayers?

Since there have been no certified acts of terrorism that have triggered the federal backstop since its creation, TRIA has cost taxpayers essentially nothing. Rather than simply shift cost onto the federal government, the plan requires insurers and policyholders to bear the first dollar loss of up to $100 million in annual claims resulting from terrorist attacks. Plus, insurers must meet a deductible of 20% of their prior year’s premiums before the government shares in the cost of losses above that level. Through the plan’s recoupment provision, the government is required to recoup any federal share of terrorism losses up to a defined level ($42.69 billion in 2022) and has the discretion to recoup government payments for losses in excess of that amount. 

What is the impact of TRIA on the insurance industry?

TRIA allows the insurance industry to play a larger role in compensating losses caused by smaller and presumably more likely terrorist attacks by sharing responsibility for catastrophic terrorist attacks with the U.S. government.  TRIA replaces government exposure with private capital, since insurers retain the cost of all but the largest terror incidents, and even in the large events, the private sector bears a significant share of the losses.

Why can’t insurers model for and price terrorism risk insurance as they do for natural disasters?

As a RAND Corporation study makes clear, acts of terrorism are manmade, infrequent, potentially catastrophic and coordinated to overcome loss mitigation efforts so quantitative risk models cannot be used to accurately analyze the risk. Unlike natural disasters, terrorist attacks are purposeful strikes against America and the American way of life, therefore concentrating on high value or life dense targets. Terrorism has no season, no region, no reliable pattern.

What are the national security implications of TRIA?

Economic security is central to homeland security. It is a large part of what terrorists are targeting. Without adequate insurance coverage, America’s economy is endangered. RAND Corporation points out that TRIA contributes to the resilience of the U.S. economy with its mechanism to fund recovery and rebuilding. TRIA was part of an overall approach to protect the U.S. economy that included establishment of the Department of Homeland Security. Involvement here is the proper role for our government because national security is primarily a federal responsibility.

What would happen if TRIA were not renewed?

Unless the federal plan is continued, terrorism risk insurance would once again be unavailable, producing economic disruption. Lenders will not make loans without terrorism risk coverage on the collateral. Consequently, construction would again be halted, costing thousands of jobs. Companies’ ability to raise capital in the debt markets would be negatively impacted, imperiling an already slow economic recovery. Businesses would face the possibility of crippling losses on a daily basis.

Is there Congressional support for extension of TRIA?

Yes. Each time the law has been scheduled to sunset, bipartisan majorities in Congress have moved to extend the program, making minor changes along the way but preserving the program’s smart design. TRIA has been reauthorized four times with strong bipartisan congressional support -- the most recent reauthorization was signed into law on Dec. 20, 2019 and extends the law through Dec. 31, 2027.

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