Terrorism Risk Insurance:
Issue Analysis and Overview of
Current Program
Baird Webel
Specialist in Financial Economics
February 26, 2013
Congressional Research Service
7-5700
www.crs.gov
R42716
CRS Report for Congress
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epared for Members and Committees of Congress

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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

Summary
Prior to the September 11, 2001, terrorist attacks, insurance coverage for losses from such attacks
was normally included in general insurance policies without specific cost to the policyholders.
Following the attacks, such coverage became very expensive if insurers offered it at all. Because
insurance is required for a variety of economic transactions, it was feared that the absence of
insurance against terrorism loss would have a wider economic impact. Private terrorism insurance
was largely unavailable for most of 2002 and some have argued that this adversely affected parts
of the economy.
Congress responded to the disruption in the terrorism insurance market by passing the Terrorism
Risk Insurance Act of 2002 (TRIA; P.L. 107-297, 116 Stat. 2322). TRIA created a temporary
three-year Terrorism Insurance Program in which the government would share some of the losses
with private insurers should a foreign terrorist attack occur. This program was extended in 2005
(P.L. 109-144, 119 Stat. 2660) and 2007 (P.L. 110-160, 121 Stat. 1839). The amount of
government loss sharing depends on the size of the insured loss. In general terms, for a relatively
small loss, private industry covers the entire loss. For a medium-sized loss, the federal role is to
spread the loss over time and over the entire insurance industry; the government assists insurers
initially but then recoups the payments through a broad levy on insurers afterwards. For a large
loss, the federal government would cover most of the losses, although recoupment is possible in
these circumstances as well. Insurers are required to make terrorism coverage available to
commercial policyholders, but TRIA does not require policyholders to purchase terrorism
coverage. The prospective government share of losses has been reduced over time compared with
the initial act, but the 2007 reauthorization expanded the program to cover losses stemming from
acts of domestic terrorism. The TRIA program is currently slated to expire at the end of 2014.
The specifics of the current program are as follows: (1) a single terrorist act must cause $5
million in damage to be certified for TRIA coverage; (2) the aggregate insured loss from certified
acts of terrorism must be $100 million in a year for the government coverage to begin; and (3) an
individual company must meet a deductible of 20% of its annual premiums for the government
coverage to begin. Once these thresholds are passed, the government covers 85% of insured
losses due to terrorism. If aggregate insured losses due to terrorism do not exceed $27.5 billion,
the Secretary of the Treasury is required to recoup 133% of the government coverage by the end
of 2017 through surcharges on property/casualty insurance policies. If the losses exceed $27.5
billion, the Secretary has discretion to apply recoupment surcharges, but is not required to do so.
Since TRIA’s passage, the private industry’s willingness and ability to cover terrorism risk have
increased. Prices for terrorism coverage have generally trended downward, and approximately
60% of commercial policyholders have purchased coverage over the past few years. This relative
market calm has been under the umbrella of TRIA coverage, and it is unclear how the insurance
market would react to the expiration of the federal program.
In the 113th Congress, Representative Michael Grimm has introduced H.R. 508 to extend the
TRIA program’s expiration date five years until the end of 2019. The bill has been referred to the
House Committee on Financial Services, who has yet to take further action in this Congress. The
committee’s Subcommittee on Insurance, Housing, and Community Opportunity held a hearing
on TRIA during the 112th Congress.

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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

Contents
Introduction ...................................................................................................................................... 1
The Terrorism Risk Insurance Act of 2002 Reauthorization Act of 2013 (H.R. 508) ..................... 2
Specifics of the Current TRIA Program ........................................................................................... 2
Coverage for Nuclear, Chemical, Biological, and Radiological Terrorism ..................................... 5
Background on Terrorism Insurance ................................................................................................ 6
Insurability of Terrorism Risk ................................................................................................... 6
International Experience with Terrorism Risk Insurance .......................................................... 7
Previous U.S. Experience with “Uninsurable” Risks ................................................................ 7
The Terrorism Insurance Market ..................................................................................................... 8
Post-9/11 and Pre-TRIA ............................................................................................................ 8
After TRIA ................................................................................................................................ 8
Evolution of Terrorism Risk Insurance Laws .................................................................................. 9

Figures
Figure 1. Initial Loss Sharing Under Current TRIA Program .......................................................... 4

Tables
Table 1. Side-by-Side of Terrorism Risk Insurance Laws ............................................................. 10

Contacts
Author Contact Information........................................................................................................... 12

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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

Introduction
Prior to the September 2001, terrorist attacks on the United States, insurers generally did not
exclude or separately charge for coverage of terrorism risks. The events of September 11, 2001,
changed this as insurers realized the extent of possible terrorism losses. Estimates of insured
losses from the 9/11 attacks are around $40 billion in current dollars, the largest insured losses
from a non-natural disaster on record. These losses were concentrated in business interruption
insurance (33% of the losses), property insurance (30%), and liability insurance (23%).1
Although primary insurance companies, those who actually sell and service the insurance policies
bought by consumers, suffered losses from the terrorist attacks, the heaviest insured losses were
absorbed by foreign and domestic reinsurers—the insurers of insurance companies. Because of
the lack of public data on, or modeling of, the scope and nature of the terrorism risk, reinsurers
felt unable to accurately price for such risks and largely withdrew from the market for terrorism
risk insurance in the months following September 11, 2001. Once reinsurers stopped offering
coverage for terrorism risk, primary insurers, suffering equally from a lack of public data and
models, also withdrew, or tried to withdraw, from the market. In most states, state regulators must
approve policy form changes. Most state regulators agreed to insurer requests to exclude
terrorism risks from commercial policies, just as these policies had long excluded war risks.
Terrorism risk insurance was soon unavailable or extremely expensive, and many businesses were
no longer able to purchase insurance that would protect them in future terrorist attacks. Although
the evidence is largely anecdotal, some were concerned that the lack of coverage posed a threat of
serious harm to the real estate, transportation, construction, energy, and utility sectors, in turn
threatening the broader economy.
In November 2002, Congress responded to the fears of economic damage due to the absence of
commercially available coverage for terrorism with passage of the Terrorism Risk Insurance Act2
(TRIA). TRIA created a three-year Terrorism Risk Insurance Program to provide a government
reinsurance backstop in the case of terrorist attack. The TRIA program was amended and
extended in 20053 and 2007.4 Following the 2007 amendments, the TRIA program is set to expire
at the end of 2014. (A side-by-side of the original law and the two reauthorization acts can be
found below in Table 1.)
Although the expiration date is not until the end of the 113th Congress, the 112th Congress took
notice of the issue. Senator Roger Wicker filed an amendment to change the expiration date of
TRIA from 2014 to 2013 during a Senate markup, although he ultimately did not offer this
amendment. The House Financial Services Subcommittee on Insurance, Housing, and

1 Robert P. Hartwig and Claire Wilkinson, “Terrorism Risk: A Reemergent Threat,” April 2011, available on the
Insurance Information Institute website at http://www.insureagainstterrorism.org/TerrorismRisk-
ReemergentThreat.pdf.
2 P.L. 107-297, 116 Stat. 2322, codified at 15 U.S.C. 6701 note. For more information, see CRS Report RS21444, The
Terrorism Risk Insurance Act of 2002: A Summary of Provisions, by Baird Webel.
3 P.L. 109-144, 119 Stat. 2660. For more information, see CRS Report RL33177, Terrorism Risk Insurance Legislation
in 2005: Issue Summary and Side-by-Side, by Baird Webel.
4 P.L. 110-160, 121 Stat 1839. For more information, see CRS Report RL34219, Terrorism Risk Insurance Legislation
in 2007: Issue Summary and Side-by-Side, by Baird Webel.
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Community Opportunity held a hearing on September 11, 2012, entitled “TRIA at Ten Years: The
Future of the Terrorism Risk Insurance Program.”5
The executive branch has been skeptical about the TRIA program in the past. Bills to expand
TRIA were resisted by then-President George W. Bush’s Administration,6 and previous
presidential budgets under President Obama called for changes in the program that would have
had the effect of scaling back the coverage for terrorist attacks. Congress declined to act on these
budgetary proposals at the time and no such legislative proposals were contained in the
President’s FY2013 budget proposal. The insurance industry largely continues to support TRIA,7
as do the real estate and other industries who have formed a “Coalition to Insure Against
Terrorism”(CIAT).8
The Terrorism Risk Insurance Act of 2002
Reauthorization Act of 2013 (H.R. 508)
Representative Michael Grimm along with 9 cosponsors introduced H.R. 508 on February 5,
2013. The bill is a reauthorization of the existing TRIA program that would extend the program
five years until the end of 2019. It would also extend the time period for mandatory recoupment
seven years until September 30, 2024. The bill has been referred to the House Committee on
Financial Services.
Specifics of the Current TRIA Program
The original TRIA legislation’s stated goals were to (1) create a temporary federal program of
shared public and private compensation for insured terrorism losses to allow the private market to
stabilize; (2) protect consumers by ensuring the availability and affordability of insurance for
terrorism risks; and (3) preserve state regulation of insurance. Although Congress has amended
specific aspects of the original act, the general operation of the program largely follows the
original statute. The changes to the program have largely reduced the government coverage for
terrorism losses, except that the 2007 amendments expanded coverage to losses due to domestic
terrorism, rather than limiting the program to foreign terrorism.
To meet the first goal, the TRIA program creates a mechanism through which the federal
government could share insured commercial property/casualty9 losses with the private insurance

5 U.S. Congress, House Committee on Financial Services, Subcommittee on Insurance, Housing and Community
Opportunity, TRIA at Ten Years: The Future of the Terrorism Risk Insurance Program, 112th Cong., 2nd sess.,
September 11, 2012. Hearing testimony can be found at http://financialservices.house.gov/calendar/eventsingle.aspx?
EventID=307443.
6 See, for example, the Statement of Administration Policy on H.R. 2761 dated December 11, 2007, available at
http://www.whitehouse.gov/sites/default/files/omb/legislative/sap/110-1/hr2761sap-h.pdf.
7 See, for example, American Insurance Association, “Aia Statement On Introduction Of TRIA Legislation,” press
release, February 5, 2013, http://www.aiadc.org/aiadotnet/docHandler.aspx?DocID=355930.
8 See the CIAT website at http://www.insureagainstterrorism.org.
9 Commercial insurance is generally that insurance purchased by businesses in contrast to personal lines of insurance,
which is purchased by individuals. This means that damage to individual homes and autos would not be covered under
the TRIA program. Property/casualty insurance includes most lines of insurance except for life insurance and health
(continued...)
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market. The role of federal loss sharing depends on the size of the insured loss. For a relatively
small loss, there is no federal sharing. For a medium-sized loss, the federal role is to spread the
loss over time and over the entire insurance industry, providing assistance up front but then
recouping the payments through a broad levy on insurance policies afterwards. For a large loss,
the federal government is to pay most of the losses, although recoupment is possible in these
circumstances as well.
The precise criteria under the current TRIA program are as follows:
1. An individual act of terrorism must be certified jointly by the Secretary of the
Treasury, Secretary of State, and Attorney General; losses must exceed $5 million
in the United States or to U.S. air carriers or sea vessels for an act of terrorism to
be certified.
2. The federal government shares in an insurer’s losses only if the insurance
industry’s aggregate insured losses from certified acts of terrorism exceed $100
million.
3. The federal program covers only commercial property and casualty insurance,
and excludes by statute several specific lines of insurance.10
4. Each insurer is responsible for paying out a certain amount in claims—known as
its deductible—before receiving federal coverage. An insurer’s deductible is
proportionate to its size, equaling 20% of an insurer’s annual direct earned
premiums the commercial property/casualty lines of insurance specified in TRIA.
5. Once the $100 million aggregate loss threshold and 20% deductible are passed,
the federal government is to cover 85% of each insurer’s losses above its
deductible until the amount of losses totals $100 billion.
6. After $100 billion in aggregate losses, there is no federal government coverage
and no requirement that insurers provide coverage.
7. In the years following the federal sharing of insurer losses, but prior to
September 30, 2017, the Secretary of the Treasury is required to establish
surcharges on property/casualty insurers to recoup 133% of the outlays to
insurers under the program. This mandatory recoupment will not apply, if the
insurance industry’s aggregate uncompensated loss exceeds $27.5 billion; in this
case, however, the Treasury Secretary retains discretionary authority to apply
recoupment surcharges.
The initial loss sharing under TRIA can be seen in Figure 1 below, adapted from a report by the
Congressional Budget Office (CBO). The exact amount of the 20% deductible at which TRIA
coverage would begin depends on how the losses are distributed among insurance companies. In
the aggregate, 20% of the direct-earned premiums for all of the property/casualty lines specified
in TRIA totaled approximately $34 billion according to 2011 data supplied by the National
Association of Insurance Commissioners (NAIC). TRIA coverage is likely, however, to begin

(...continued)
insurance.
10 Named lines of insurance that are not covered are federal crop insurance, private crop or livestock insurance, private
mortgage insurance, title insurance, financial guaranty insurance of single-line guaranty insurers, medical malpractice,
flood insurance, reinsurance, and all life insurance products.
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under this amount as the losses from an attack are unlikely to be equally distributed among
insurance companies.
Figure 1. Initial Loss Sharing Under Current TRIA Program


Source: Congressional Research Service, adapted from Congressional Budget Office, Federal Reinsurance for
Terrorism Risks: Issues in Reauthorization, August, 2007, p. 12.
Note: Aggregate of all individual insurer deductibles totaled approximately $34 billion in 2011, according to the
NAIC.
TRIA addresses the second goal, to protect consumers, by requiring those insurers that offer the
lines of insurance covered by TRIA to make terrorism insurance available prospectively to their
commercial policyholders. This coverage may not differ materially from coverage for other types
of losses. Each terrorism insurance offer must reveal both the premium charged for terrorism
insurance and the possible federal share of compensation. Policyholders are not, however,
required to purchase coverage. If the policyholder declines to purchase terrorism coverage, its
insurer can exclude terrorism losses. The law itself does not limit what insurers can charge for
terrorism risk insurance, though state regulators typically have the authority under state law to
modify excessive, inadequate, or unfairly discriminatory rates.
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TRIA’s third goal, to preserve state regulation of insurance, is expressly accomplished in Section
106(a), which provides “Nothing in this title shall affect the jurisdiction or regulatory authority of
the insurance commissioner [of a state].” The Section 106(a) provision has two exceptions: (1)
the federal statute preempts any state definition of an “act of terrorism” in favor of the federal
definition and (2) state rate and form approval laws for terrorism insurance were preempted from
enactment to the end of 2003. In addition to these exceptions, Section 105 of the law also
preempts state laws with respect to insurance policy exclusions for acts of terrorism.
The administration of the TRIA program was originally left generally to the Secretary of the
Treasury. This was changed somewhat in the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010.11 This act created a new Federal Insurance Office (FIO) to be located in
the Department of the Treasury. Among the duties specified for the FIO in the legislation was to
assist the Secretary in the administration of the Terrorism Insurance Program.12
No acts of terrorism meeting the requirements for coverage under the program have occurred
since the passage of TRIA.
Coverage for Nuclear, Chemical, Biological, and
Radiological Terrorism
A terrorist attack with some form of nuclear, chemical, biological, or radiological (NCBR)13
weapon would often be considered the most likely type of attack causing large scale losses. The
current TRIA statute does not specifically include or exclude NCBR events; thus, the TRIA
program in general would cover insured losses from terrorist actions due to NCBR as it would for
an attack by conventional means. The term insured losses, however, is a meaningful distinction.
Most insurance policies that would fall under the TRIA umbrella include exclusions that would
likely limit insurer coverage of an NCBR event, whether it was due to terrorism or to some sort of
accident, although these exclusions have never been legally tested in the United States after a
terrorist event.14 If these exclusions are invoked and do indeed limit the insurer losses due to
NCBR terrorism, they would also limit the TRIA coverage of such losses. Language that would
have specifically extended TRIA coverage to NCBR events was offered in the past,15 but was not
included in legislation as enacted. In 2007, the Government Accountability Office (GAO) was
directed to study the issue and a GAO report was issued in 2008.16

11 P.L. 111-203, 124 Stat. 1376.
12 Section 502 of P.L. 111-203, codified at 31 U.S.C. 313(c)(1)(D).
13 There is some variance in the acronym used for such attacks. The U.S. Department of Defense, for example, uses
“CBRN,” rather than NCBR, in its Dictionary of Military and Associated Terms; see p. 86 at http://www.scribd.com/
doc/25603718/The-DOD-Lexicon-JP1-02.
14 It should be noted that insurers might have attempted to exclude the September 11, 2001, losses under existing war
risk exclusions, but did not generally attempt to do so.
15 See, for example, H.R. 2761 (110th Congress) as passed by the House on September 19, 2007, and H.Rept. 110-318,
available at http://www.gpo.gov/fdsys/pkg/CRPT-110hrpt318/pdf/CRPT-110hrpt318.pdf.
16 U.S. Government Accountability Office, TERRORISM INSURANCE: Status of Coverage Availability for Attacks
Involving Nuclear, Biological, Chemical, or Radiological Weapons, GAO-09-39, December 12, 2008, at http://gao.gov/
products/GAO-09-39.
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Background on Terrorism Insurance
Insurability of Terrorism Risk
Stripped to its most basic elements, insurance is a fairly straightforward operation. An insurer
agrees to assume an indefinite future risk in exchange for a definite current premium from a
consumer. The insurer pools a large number of risks such that at any given point in time, the
ongoing losses will not be larger than the current premiums being paid, plus the residual amount
of past premiums that the insurer retains and invests, plus, in a last resort, any borrowing against
future profits if this is possible. For the insurer to operate successfully and avoid bankruptcy, it is
critical to accurately estimate the probability of a loss and the severity of that loss so that a
sufficient premium can be charged. Insurers generally depend upon huge databases of past loss
information in setting these rates. Everyday occurrences, such as automobile accidents or natural
deaths, can be estimated with great accuracy. Extraordinary events, such as large hurricanes, are
more difficult, but insurers have many years of weather data, coupled with sophisticated
computer models, with which to make predictions.
Terrorism risk is seen by many to be so fundamentally different from other risks as to be
essentially uninsurable by the private insurance market, and thus requiring a government solution.
The argument that terrorism risk is uninsurable typically focuses on lack of public data about both
the probability and severity of terrorist acts. The reason for the lack of historical data would
generally be seen as a good thing—very few terrorist attacks are attempted and fewer have
succeeded. This, however, does not assuage the fiduciary duty of an insurance company president
not to put a company at risk by insuring against an event that could bankrupt the firm. As a
replacement for large amounts of historical data, insurers turn to various forms of models similar
to those used to assess future hurricane losses. Even the best model, however, can only partly
replace good data, and terrorism models are still relatively new compared with hurricane models.
One prominent insurance textbook identifies four ideal elements of an insurable risk: (1) a
sufficiently large number of insureds to make losses reasonably predictable; (2) losses must be
definite and measurable; (3) losses must be fortuitous or accidental; and (4) losses must not be
catastrophic (i.e., it must be unlikely to produce losses to a large percentage of the risks at the
same time).17 Terrorism risk in the United States would appear to fail the first criterion. It also
likely fails the third due to the malevolent human actors behind terrorist attacks, whose motives,
means, and targets of attack are constantly in flux. Whether it fails the fourth criterion is largely
decided by the underwriting actions of insurers themselves (i.e., whether the insurers insure a
large number of risks in a single geographic area that would be affected by a terrorist strike).
Unsurprisingly, insurers generally have sought to limit their exposures in particular geographic
locations with a conceptually higher risk for terrorist attacks, making terrorism insurance more
difficult to find in those areas.

17 Emmett J. Vaughan and Therese Vaughan, Fundamentals of Risk and Insurance (Hoboken, NJ: John Wiley & Sons,
2003), p. 41.
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International Experience with Terrorism Risk Insurance
Although the U.S. experience with terrorism is relatively limited, other countries have dealt with
the issue more extensively and have developed their own responses to the challenges presented by
terrorism risk. Spain, which has seen significant terrorist activity by Basque separatist
movements, insures against acts of terrorism via a broader government-owned reinsurer that has
provided coverage for catastrophes since 1954. The United Kingdom, responding the Irish
Republican Army attacks in the 1980s, created Pool Re, a privately owned mutual insurance
company with government backing, specifically to insure terrorism risk. In the aftermath of the
September 11, 2001, attacks, many foreign countries reassessed their terrorism risk and created a
variety of approaches to deal with the risk. The UK greatly expanded Pool Re, whereas Germany
created a private insurer with government backing to offer terrorism insurance policies.
Germany’s plan, like TRIA in the United States, was created as a temporary measure. It has been
extended since its inception and it is now set to expire at the end of 2013.18 Not all countries,
however, concluded that some sort of government backing for terrorism insurance was necessary.
Canada specifically considered, and rejected, creating a government program following
September 11, 2001.
Previous U.S. Experience with “Uninsurable” Risks
Terrorism risk post-2001 is not the first time the United States has faced a risk perceived as
uninsurable in private markets that Congress chooses to address through government action.
During World War II, for example, Congress created a “war damage” insurance program, and
there are current programs insuring against aviation war risk19 and flood losses,20 respectively.
The closest previous analog to the situation with terrorism risk may be the federal riot reinsurance
program created in the late 1960s. Following large scale riots in American cities in the late 1960s,
insurers generally pulled back from insuring in those markets, either adding policy exclusions to
limit their exposure to damage from riots or ceasing to sell property damage insurance altogether.
In response, Congress created a riot reinsurance program as part of the Housing and Urban
Development Act of 1968.21 The federal riot reinsurance program offered reinsurance contracts
similar to commercial excess reinsurance. The government agreed to cover some percentage of an
insurance company’s losses above a certain deductible in exchange for a premium paid by that
insurance company. Private reinsurers eventually returned to the market and the federal riot
reinsurance program was terminated in 1985.

18 More information on foreign countries’ programs can be found in pages 8-11 of the testimony of Erwann O. Michel-
Kerjan at the previously mentioned September 11, 2012, House Financial Subcommittee hearing available at
http://financialservices.house.gov/uploadedfiles/hhrg-112-ba04-wstate-emichelkerjan-20120911.pdf.
19 For more information, see http://www.faa.gov/about/office_org/headquarters_offices/apl/aviation_insurance/.
20 For more information, see CRS Report R40650, National Flood Insurance Program: Background, Challenges, and
Financial Status, by Rawle O. King.
21 P.L. 90-448, 82 Stat. 476. The act also created state “Fair Access to Insurance Requirements” (FAIR) plans and a
Federal Crime Insurance Program.
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The Terrorism Insurance Market
Post-9/11 and Pre-TRIA
The September 2001 terrorist attacks, and the resulting billions of dollars in insured losses,
caused significant upheaval in the insurance market. Even before the attacks, the insurance
market was showing signs of a cyclical “hardening” of the market in which prices typically rise
and availability is somewhat limited. The unexpectedly large losses caused by terrorist acts
exacerbated this trend, especially with respect to the commercial lines of insurance most at risk
for terrorism losses. Post-September 11, insurers and reinsurers started including substantial
surcharges for terrorism risk, or, more commonly, they excluded coverage for terrorist attacks
altogether. Reinsurers could take these steps rapidly because reinsurance contracts and rates are
generally unregulated. Primary insurance contracts and rates are more closely regulated by the
individual states and the exclusion of terrorism coverage for the individual purchaser of insurance
required regulatory approval at the state level in most cases. States acted fairly quickly, and, by
early 2002, 45 states had approved insurance policy language prepared by the Insurance Services
Office, Inc. (ISO, an insurance consulting firm), excluding terrorism damage in standard
commercial policies.22
The lack of readily available terrorism insurance caused fears of a larger economic impact,
particularly on the real estate market. In most cases, lenders prefer or require that a borrower
maintain insurance coverage on a property. Lack of terrorism insurance coverage could lead to
defaults on existing loans and a downturn in future lending, causing economic ripple effects as
buildings are not built and construction workers remain idle. The 14-month period after the
September 2001 terrorist attacks and before the November 2002 passage of TRIA provides some
insight into the effects of a lack of terrorism insurance. Some examples in September 2002
include the Real Estate Round Table releasing a survey finding that “$15.5 billion of real estate
projects in 17 states were stalled or cancelled because of a continuing scarcity of terrorism
insurance”23 and Moody’s Investors Service downgrading $4.5 billion in commercial mortgage-
backed securities.24 This picture, however, was not uniform. For example, in July 2002, the Wall
Street Journal reported that “despite concerns over landlords’ ability to get terrorism insurance,
trophy properties were in demand.”25 Aside from such anecdotes, there is little hard data to form
judgments about what effect the lack of terrorism coverage had on the economy in this time
period.
After TRIA
The “make available” provisions of TRIA addressed the availability problem in the terrorism
insurance market, as insurers were required by law to offer commercial terrorism coverage. There

22 Jeff Woodward, “The ISO Terrorism Exclusions: Background and Analysis,” IRMI Insights, February 2002,
available at http://www.irmi.com/expert/articles/2002/woodward02.aspx.
23 “Terror Insurance Drag on Real Estate Still Climbing,” Real Estate Roundtable, September 19, 2003, available at
http://www.rer.org/media/newsreleases/TRIA_Survey_15billion_Sept19_2002.cfm.
24 “Moody’s Downgrades Securities on Lack of Terrorism Insurance,” Wall Street Journal, September 30, 2002, p.
C14.
25 “Office-Building Demand Rises Despite Vacancies,” Wall Street Journal, July 24, 2002, p. B6.
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was significant uncertainty, however, as to how businesses would react, because there was no
general requirement to purchase terrorism coverage26 and the pricing of terrorism coverage was
initially high. Initial consumer reaction to the terrorism coverage offers was relatively subdued.
Marsh, Inc., a large insurance broker, reports that only 27% of their clients bought terrorism
insurance in 2003. This take-up rate, however, climbed relatively quickly to 49% in 2004 and
58% in 2005. Since 2005, the take-up rate has stayed near 60%, with Marsh reporting 65% in
2011.27
The price for terrorism insurance has appeared to decline over the past decade, although available
pricing data is based on surveys; thus, the level of pricing may not always be comparable between
sources. The 2006 and 2010 reports by the President’s Working Group on Financial Markets show
a high of above 7% for the median terrorism premium as a percentage of the total property
premium in 2003, with a generally downward trend, and the latest values between 3% and 4%.28
These values were reported by Aon, another major insurance broker. While the trend may be
downward, there has been significant variability, with a rate above 6% reported in the 4th quarter
of 2006. There is also significant variability across industries. For example, Marsh reported rates
in 2009 as high as 24% of the property premium for financial institutions and as low as 2% in the
food and beverage industry.29
The willingness of insurers to cover terrorism risk, as well as their financial capability to do so,
has increased over the past decade. From the late 2001 and 2002 marketplace, where terrorism
coverage was essentially unavailable, the latest estimates from the insurance broker Guy
Carpenter are that between $6 billion and $8 billion in terrorism reinsurance capacity is available
in the U.S. market. The combined policyholder surplus among all U.S. property/casualty insurers
was $551.8 billion at the start of 2012, up from $293.5 billion at the start of 2002.30 This amount,
however, backs all policies in the United States and is subject to depletion in a wide variety of
events. Extreme weather losses could particularly draw capital away from the terrorism insurance
market, as such weather events share some risk characteristics with large terrorist attacks.
Evolution of Terrorism Risk Insurance Laws
Table 1 presents a side-by-side comparison of the original TRIA law, along with the reauthorizing
laws from 2005 and 2007.

26 Although there is no requirement in federal law to purchase terrorism coverage, businesses may be required by state
law to purchase the coverage. This is particularly the case in workers compensation insurance. Market forces, such as
requirements for commercial loans, may also compel purchase of terrorism coverage.
27 Marsh, Inc., The Marsh Report Terrorism Risk Insurance 2010, p. 10, and U.S. Insurance Market Report 2012,
Property, available at http://usa.marsh.com/NewsInsights/GlobalIMR/IMRContent/ID/19468/US-Insurance-Market-
Report-2012-Property.aspx.
28 President’s Working Group on Financial Markets, Terrorism Risk Insurance, September 2006, p. 37, and Market
Conditions for Terrorism Risk Insurance, 2010, p. 30.
29 Marsh, Inc., The Marsh Report Terrorism Risk Insurance 2010, p. 14.
30 AM Best, Best’s Aggregates & Averages, Property-Casualty, 2002 Edition, p. 2 and AM Best Statistical Study,
“U.S. Property/Casualty—2011 Financial Results,” March 26, 2012, p. 1.
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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

Table 1. Side-by-Side of Terrorism Risk Insurance Laws
15 U.S.C. 6701 Note
Provision
(P.L. 107-297)
P.L. 109-144
P.L. 110-160
Title
Terrorism Risk Insurance
Terrorism Risk Insurance
Terrorism Risk Insurance
Act of 2002
Extension Act of 2005
Program Reauthorization
Act of 2007
Expiration Date
December 31, 2005
December 31, 2007
December 31, 2014
(Sec. 108(a))
(Sec. 2)
(Sec. 3(a))
“Act of Terrorism”
For an act of terrorism to
No Change
Removed requirement that
Definition
be covered under TRIA, it
a covered act of terrorism
must be a violent act
be committed on behalf of
committed on behalf of a
a foreign person or
foreign person or interest
interest. (Sec. 2)
as part of an effort to
coerce the U.S. civilian
population or influence U.S.
government policy. It must
have resulted in damage
within the United States or
to a U.S. airliner or mission
abroad. Terrorist act is to
be certified by the
Secretary of the Treasury
in concurrence with the
Attorney General and
Secretary of State.
(Sec. 102(1)(A))
Limitation on Act of
Terrorist act would not be
No Change
No Change
Terrorism Certification
covered in the event of a
in Case of War
war, except for workers
compensation insurance.
(Sec. 102(1)(B)(I))
Minimum Damage To Be Terrorist act must cause
No Change
No Change
Certified
more than $5 million in
property and casualty
insurance losses to be
covered. (Sec. 102(1)(B)(i ))
Aggregate Industry Loss
No Provision
Created a “program
No Change. Program
Requirement/Program
trigger” that would prevent
trigger remains at $100
Trigger
coverage under the
mil ion until 2014. (Sec. 3
program unless aggregate
(c))
industry losses exceed $50
mil ion in 2006 and $100
mil ion for 2007. (Sec. 6)
Insurer Deductible
7% of earned premium for
Raised deductible to 17.5%
No Change. Deductible
2003, 10% of earned
for 2006 and 20% for 2007.
remains at 20% until 2014.
premium for 2004, 15% of
(Sec. 3)
(Sec. 3(c))
earned premium for 2005.
(Sec. 102(7))
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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

15 U.S.C. 6701 Note
Provision
(P.L. 107-297)
P.L. 109-144
P.L. 110-160
Covered Lines of
Commercial property/
Excluded commercial auto,
No change from P.L. 109-
Insurance
casualty insurance, including burglary and theft,
144
excess insurance, workers’
professional liability (except
compensation, and surety
for directors and officers
but excluding crop
liability), and farm owners
insurance, private mortgage multiple peril from
insurance, title insurance,
coverage. (Sec. 3)
financial guaranty insurance,
medical malpractice
insurance, health or life
insurance, flood insurance,
or reinsurance.
(Sec. 102(12))
Mandatory Availability
Every insurer must make
No Change. Mandatory
No Change. Mandatory
terrorism coverage that
availability extended
availability extended
does not differ materially
through 2007. (Sec. 2(b))
through 2014. (Sec. 3(c))
from coverage applicable to
losses other than
terrorism. (Sec. 103(c))
Insured Shared Loss
Federal share of losses will
Reduced federal share of
No Change. Federal share
Compensation
be 90% for insured losses
losses to 85% for 2007.
remains at 85% through
that exceed the applicable
(Sec. 4)
2014.
insurer deductible.
(Sec. 103(e))
Cap on Annual Liability
Federal share of
No Change
Removed the possibility
compensation paid under
that a future Congress
the program will not
could require insurers to
exceed $100 million and
cover some share of losses
insurers are not liable for
above $100,000,000,000 if
any portion of losses that
the insurer has met its
exceed $100 million unless
individual deductible.
Congress acts otherwise to
Requires insurers to clearly
cover these losses. (Sec.
disclose this to policy
103(e))
holders.
(Sec. 4(a) and Sec. 4(d))
Payment Procedures if
After notice by the
No Change
Required Secretary of the
Losses Exceed
Secretary of the Treasury,
Treasury to publish
$100,000,000,000
Congress determines the
regulations within 240 days
procedures for payments if
of passage regarding
losses exceed $100 billion.
payments if losses exceed
(Sec. 103(e)(3))
$100 billion. (Sec. 4(c))
Aggregate Retention
$10 billion for 2002-2003,
Raises amount to $25
No Change. Aggregate
Amount Maximum
$12.5 billion for 2004, $15
billion for 2006 and $27.5
retention remains at $27.5
billion for 2005
billion for 2007. (Sec. 5)
billion through 2014.
(Sec. 103(6))
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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

15 U.S.C. 6701 Note
Provision
(P.L. 107-297)
P.L. 109-144
P.L. 110-160
Mandatory Recoupment
If insurer losses are under
No Change
Increases total recoupment
of Federal Share
the aggregate retention
amount to be col ected by
amount, a mandatory
the premium surcharges to
recoupment of the federal
133% of the previously
share of the loss will be
defined mandatory
imposed. If insurer losses
recoupment amount.
are over the aggregate
(Sec. 4(e)(1)(A))
retention amount, such
recoupment is at the
discretion of the Secretary
of the Treasury.
(Sec. 103(e)(7))
Recoupment Surcharge
Surcharge is limited to 3%
No Change
Removes 3% limit for
of property-casualty
mandatory surcharge.
insurance premium and
(Sec. 4(e)(2)(A))
may be adjusted by the
Secretary to take into
account the economic
impact of the surcharge on
urban commercial centers,
the differential risk factors
related to rural areas and
smaller commercial
centers, and the various
exposures to terrorism risk
across lines of insurance.
(Sec. 103(8))
Source: Congressional Research Service, using Public Laws obtained from the Government Printing Office
through http://www.congress.gov.
Notes: Section numbers for the initial TRIA law are as codified in 15 U.S.C 6701 note. Section numbers for P.L.
109-144 and P.L. 110-160 are from the legislation as enacted.



Author Contact Information

Baird Webel

Specialist in Financial Economics
bwebel@crs.loc.gov, 7-0652


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