Terrorism Risk Insurance:
Issue Analysis and Overview of
Current Program

Baird Webel
Specialist in Financial Economics
March 28, 2014
Congressional Research Service
7-5700
www.crs.gov
R42716


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. 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 insurance policies 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 the
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 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) terrorist act must cause $5 million in
insured losses to be certified for TRIA coverage; (2) the aggregate insured losses from a certified
act of terrorism must be $100 million in a year for the government coverage to begin; and (3) an
individual insurer 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 the insured losses are under $27.5 billion, the Secretary of the Treasury
is required to recoup 133% of government outlays. As insured losses rise above $27.5 billion, the
Secretary is required to recoup a progressively reduced amount of the outlays. At some high
insured loss level, which will depend on the exact distribution of losses, the Secretary would no
longer be required to recoup outlays, but would retain the discretionary authority to do so.
Since TRIA’s passage, the private industry’s willingness and ability to cover terrorism risk have
increased. According to industry surveys, 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, three bills, H.R. 508, H.R. 1945, and H.R. 2146, have been introduced to
extend the TRIA program. H.R. 508 would extend the program’s expiration date five years, until
2019. H.R. 1945 would extend the program 10 years, until 2024, and add the Secretary of
Homeland Security as the lead authority for certifying an act of terrorism. H.R. 2146 would
extend the program’s expiration date 10 years, until 2024.
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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

Contents
Introduction ...................................................................................................................................... 1
TRIA in the 113th Congress .............................................................................................................. 2
The Terrorism Risk Insurance Act of 2002 Reauthorization Act of 2013 (H.R. 508) ............... 2
The Fostering Resilience to Terrorism Act of 2013 (H.R. 1945) .............................................. 2
Terrorism Risk Insurance Program Reauthorization Act of 2013 (H.R. 2146) ......................... 3
Congressional Hearings ............................................................................................................. 3
Goals and Specifics of the Current TRIA Program.......................................................................... 3
Federal Government Sharing of Terrorism Losses .................................................................... 4
Initial Loss Sharing ............................................................................................................. 5
Recoupment Provisions ....................................................................................................... 6
Program Administration ...................................................................................................... 6
TRIA Consumer Protections ...................................................................................................... 6
Preservation of State Insurance Regulation ............................................................................... 6
Coverage for Nuclear, Chemical, Biological, and Radiological Terrorism ..................................... 7
Background on Terrorism Insurance ................................................................................................ 7
Insurability of Terrorism Risk ................................................................................................... 7
International Experience with Terrorism Risk Insurance .......................................................... 8
Previous U.S. Experience with “Uninsurable” Risks ................................................................ 9
The Terrorism Insurance Market ..................................................................................................... 9
Post-9/11 and Pre-TRIA ............................................................................................................ 9
After TRIA .............................................................................................................................. 10
Evolution of Terrorism Risk Insurance Laws ................................................................................ 11

Figures
Figure 1. Initial Loss Sharing Under Current TRIA Program .......................................................... 5

Tables
Table 1. Side-by-Side of Terrorism Risk Insurance Laws ............................................................. 11
Table A-1. Example of TRIA Recoupment Calculations ............................................................... 16

Appendixes
Appendix. Calculation of TRIA Recoupment Amounts ................................................................ 15

Contacts
Author Contact Information........................................................................................................... 16
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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 over $40 billion in current dollars, the largest insured losses from
a non-natural disaster on record. These losses were concentrated in business interruption
insurance (34% 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 are in
Table 1.)
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,5 and previous
presidential budgets under President Obama called for changes in the program that would have
had the effect of scaling back the TRIA coverage.6 Congress declined to act on these budgetary

1 Insurance Information Institute, Terrorism Risk: A Constant Threat, March 2014, available at http://www.iii.org/
assets/docs/pdf/terrorism_white_paper_0320141.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.
5 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.
6 See, for example, Office of Management and Budget, Analytical Perspectives, Budget of the United States, Fiscal
(continued...)
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proposals at the time and no such legislative proposals were contained in the President’s FY2013
or FY2014 budget proposal. The insurance industry largely continues to support TRIA,7 as do
commercial insurance consumers in the real estate and other industries that have formed a
“Coalition to Insure Against Terrorism” (CIAT).8 Not all insurance consumers support renewal of
TRIA, however, with the Consumer Federation of America questioning the need for the program.9
Although the April 2013 bombing in Boston was termed an “act of terror,” by the President,10
whether the bombing is considered as such under TRIA depends on a certification by the
Secretary of the Treasury in conjunction with the Attorney General and the Secretary of State. As
of September 9, 2013, such a certification had not been issued. The Massachusetts Department of
Insurance has collected estimates of insured losses from the Boston bombing. The losses from
TRIA covered lines of insurance appear to be under the $5 million threshold established in the
act.11
TRIA in the 113th Congress
The Terrorism Risk Insurance Act of 2002 Reauthorization Act of
2013 (H.R. 508)

Representative Michael Grimm along with nine 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 deadline for mandatory recoupment
seven years, until September 30, 2024. The bill has been referred to the House Committee on
Financial Services.
The Fostering Resilience to Terrorism Act of 2013 (H.R. 1945)
Representative Bennie Thompson along with one cosponsor introduced H.R. 1945 on May 9,
2013. The bill would extend the expiration date of the program 10 years, until the end of 2024,
and would extend the deadline for mandatory recoupment seven years, until September 30, 2024.
It would also add the Secretary of Homeland Security as the lead authority responsible for
certifying an act of terrorism and require the Secretary to provide information and reports on
terrorism risks and best practices to foster resilience in the face of terrorism. The Secretary of the

(...continued)
Year 2011, p. 184, http://www.gpo.gov/fdsys/pkg/BUDGET-2011-PER/pdf/BUDGET-2011-PER.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 Consumer Federation of America, “Growing Insurer Surplus Calls into Question Industry Need for Congressional
Renewal of Terrorism Insurance,” May 8, 2013, available at http://consumerfed.org/news/666.
10 The White House, “Statement by the President,” press release, April 16, 2013, http://www.whitehouse.gov/the-press-
office/2013/04/16/statement-president.
11 According to information provided by the Massachusetts Department of Insurance to CRS, the incurred losses on
TRIA-eligible lines of insurance totaled approximately $2.6 million as of August 2013, with $1.2 million of this having
been paid out. Estimated health insurance losses totaled more than $20 million; health insurance, however, is not
covered under TRIA.
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Treasury would remain in the certification process but as a concurring party, not the lead
authority, and the program in general would remain under the authority of the Treasury. H.R.
1945 has been referred to the House Committee on Financial Services and the House Committee
on Homeland Security.
Terrorism Risk Insurance Program Reauthorization Act of 2013
(H.R. 2146)

Representative Michael Capuano along with 20 cosponsors introduced H.R. 2146 on May 23,
2013. The bill is a reauthorization of the existing TRIA program that would extend the program
10 years, until the end of 2024, as well as extending the deadline for mandatory recoupment 10
years, until September 30, 2027. In addition, the President’s Working Group on Financial Markets
is to continue filing reports on the market conditions, with reports required in 2017, 2020, and
2023. The bill has been referred to the House Committee on Financial Services.
Congressional Hearings
The House Committee on Financial Services and the Senate Committee on Banking, Housing,
and Urban Affairs have held hearings on terrorism insurance including the following:
• “Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market, Part
II,” Senate Committee on Banking, Housing, and Urban Affairs, February 25,
2014.12
• “The Future of Terrorism Insurance: Fostering Private Market Innovation to
Limit Taxpayer Exposure,” House Financial Services’ Subcommittee on Housing
and Insurance, November 13, 2013.13
• “Reauthorizing TRIA: The State of the Terrorism Risk Insurance Market,” Senate
Committee on Banking, Housing, and Urban Affairs, September 25, 2013.14
• “The Terrorism Risk Insurance Act of 2002,” House Committee on Financial
Services, September 19, 2013.15
Goals and 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

12 See http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=08e1735c-d2be-
4260-a1dc-12975ab9397f.
13 See http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=360497.
14 See http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=b9077dbb-2ae2-
425a-89dd-793fcb049190.
15 See http://financialservices.house.gov/calendar/eventsingle.aspx?EventID=349518.
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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.
Federal Government Sharing of Terrorism Losses
To meet the first goal, the TRIA program creates a mechanism through which the federal
government could share insured commercial property/casualty16 losses with the private insurance
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 due to a certified act of
terrorism only if “the aggregate industry insured losses resulting from such
certified act of terrorism”17 exceed $100 million.
3. The federal program covers only commercial property and casualty insurance,
and excludes by statute several specific lines of insurance.18
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

16 Commercial insurance is generally insurance purchased by businesses in contrast to personal lines of insurance,
which is purchased by individuals. This means 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
insurance.
17 15 U.S.C. §6701 note, Section 103(e)(1)(B).
18 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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surcharges on property/casualty insurance policies to recoup 133% of some or all
of the outlays to insurers under the program. If losses are very high, the Secretary
has the authority to assess surcharges, but is not required to do so. (See
“Recoupment Provisions” below for more detail.)
Initial Loss Sharing
The initial loss sharing under TRIA can be seen in Figure 1, 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 $36 billion according to 2012 data supplied by the National
Association of Insurance Commissioners (NAIC). TRIA coverage is likely, however, to begin
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 1, 2007, p. 12.
Note: Aggregate of all individual insurer deductibles totaled approximately $36 billion in 2012, according to
the NAIC data and CRS calculations.
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Recoupment Provisions
The precise amount to be recouped is determined by the interplay between a number of different
factors in the law and in the insurance marketplace. The general result of the recoupment
provisions is that, for attacks that result in under $27.5 billion19 in insured losses, the Treasury
Secretary is required to recoup 133% of the government outlays through surcharges on
property/casualty insurance policies. For events with insured losses over $27.5 billion, the
Secretary has discretionary authority to recoup all the government outlays and may be required to
partially recoup the government outlays depending on the size of the attacks and the amount of
uncompensated losses paid by the insurance industry. (See the Appendix for more information on
exact recoupment calculations.) The mandatory recoupment is required to occur prior to the end
of FY2017. Since the latest reauthorization was passed in 2007, this requirement resulted in all
recoupment being completed within a 10-year timeframe. For an attack causing large insured
loses, however, this requirement could result in high surcharges being applied for a relatively
short time.
Program Administration
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 2010.20 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.21
TRIA Consumer Protections
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.
Preservation of State Insurance Regulation
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

19 This $27.5 billion figure is the current one and has been in effect since 2007. At the beginning of the TRIA program,
this started at $10 billion and increased over time.
20 P.L. 111-203, 124 Stat. 1376.
21 Section 502 of P.L. 111-203, codified at 31 U.S.C. §313(c)(1)(D).
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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.
Coverage for Nuclear, Chemical, Biological, and
Radiological Terrorism

A terrorist attack with some form of nuclear, chemical, biological, or radiological (NCBR)22
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.23 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,24 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 2008.25
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

22 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.
23 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.
24 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.
25 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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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, making it
essentially uninsurable by the private insurance market; 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).26 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.
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 to 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 2013.27 Not all countries,

26 Emmett J. Vaughan and Therese Vaughan, Fundamentals of Risk and Insurance (Hoboken, NJ: John Wiley & Sons,
2003), p. 41.
27 More information on foreign countries’ programs can be found in pages 8-11 of the testimony of Erwann O. Michel-
Kerjan before the 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. See http://financialservices.house.gov/uploadedfiles/hhrg-112-ba04-wstate-emichelkerjan-
20120911.pdf.
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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 risk28 and flood losses,29 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 1968.30 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.
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

28 For more information, see http://www.faa.gov/about/office_org/headquarters_offices/apl/aviation_insurance/.
29 For more information, see CRS Report R40650, National Flood Insurance Program: Background, Challenges, and
Financial Status
, by Rawle O. King.
30 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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Terrorism Risk Insurance: Issue Analysis and Overview of Current Program

Services Office, Inc. (ISO, an insurance consulting firm), excluding terrorism damage in standard
commercial policies.31
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”32 and Moody’s Investors Service downgrading $4.5 billion in
commercial mortgage-backed securities.33 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.”34 The Congressional Budget Office
concluded in 2005 that “[TRIA] appears to have had little measurable effect on office
construction, employment in the construction industry, or the volume of commercial construction
loans made by large commercial banks,” but CBO also notes that variety of economic factors at
the time “could be masking positive macroeconomic effects of TRIA.”35
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
was significant uncertainty, however, as to how businesses would react, because there was no
general requirement to purchase terrorism coverage36 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 62% in
2012.37

31 Jeff Woodward, “The ISO Terrorism Exclusions: Background and Analysis,” IRMI Insights, February 2002,
available at http://www.irmi.com/expert/articles/2002/woodward02.aspx.
32 “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.
33 “Moody’s Downgrades Securities on Lack of Terrorism Insurance,” Wall Street Journal, September 30, 2002,
p. C14.
34 “Office-Building Demand Rises Despite Vacancies,” Wall Street Journal, July 24, 2002, p. B6.
35 Congressional Budget Office, Federal Terrorism Reinsurance: An Update, January 2005, pp 10-11, available at
http://www.cbo.gov/publication/16210.
36 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.
37 Marsh, Inc., 2013 Terrorism Risk Insurance Report, May 2013, p. 9.
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The price for terrorism insurance has appeared to decline over the past decade, although available
pricing data are 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%.38 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
fourth 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.39 This variability dropped in the latest report by
Marsh as the rates for 2012 vary from 7% in the transportation industry and the hospitality and
gaming industry to 1% in the energy and mining industry.40
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 2002.41 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.
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 (§2)
December 31, 2014 (§3(a))
(§108(a))

38 President’s Working Group on Financial Markets, Terrorism Risk Insurance, September 2006, p. 37, and Market
Conditions for Terrorism Risk Insurance
, 2010, p. 30.
39 Marsh, Inc., The Marsh Report: Terrorism Risk Insurance 2010, p. 14.
40 Marsh, Inc., 2013 Terrorism Risk Insurance Report, May 2013, p. 12.
41 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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15 U.S.C. 6701 Note
Provision
(P.L. 107-297)
P.L. 109-144
P.L. 110-160
“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. (§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.
(§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.
(§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. (§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. (§3 (c))
program unless “aggregate
industry losses resulting
from such certified act of
terrorism” exceed $50
mil ion in 2006 and $100
mil ion for 2007. (§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
(§3)
(§3(c))
earned premium for 2005.
(§102(7))
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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. (§3)
financial guaranty insurance,
medical malpractice
insurance, health or life
insurance, flood insurance,
or reinsurance.
(§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. (§2(b))
through 2014. (§3(c))
from coverage applicable to
losses other than
terrorism. (§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. (§4) remains at 85% through
that exceed the applicable
2014.
insurer deductible.
(§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 billion 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 billion unless
individual deductible.
Congress acts otherwise to
Requires insurers to clearly
cover these losses.
disclose this to policy
(§103(e))
holders.
(§4(a) and §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
(§103(e)(3))
$100 billion. (§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. (§5)
billion through 2014.
(§103(6))
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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
(§4(e)(1)(A))
retention amount, such
recoupment is at the
discretion of the Secretary
of the Treasury.
(§103(e)(7))
Recoupment Surcharge
Surcharge is limited to 3%
No Change
Removes 3% limit for
of property-casualty
mandatory surcharge.
insurance premium and
(§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.
(§103(e)(8))
Source: CRS 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.

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Appendix. Calculation of TRIA Recoupment
Amounts

Table A-1 below contains illustrative examples of how the recoupment for the government
portion of terrorism losses under TRIA might be calculated in the aggregate for various sizes of
losses. It should be noted that the amount of the deductible in the chart is simply assumed to be
30% of the insured losses for illustrative purposes. Without knowing the actual distribution of
losses due to a terrorist attack, it is impossible to know what the actual deductible will be. The
conclusions of the chart with regard to recoupment, however, hold across different actual
deductible amounts.
The specific provisions of the law define the “insurance marketplace aggregate retention amount”
(Column F) as the lesser of $27.5 billion or the total amount of insured losses (Column A). The
“mandatory recoupment amount” (Column G) is defined as the difference between $27.5 billion
and the aggregate insurer losses that were not compensated for by the program (i.e., the total of
the insurers’ deductible (Column B) and their 15% loss share (Column C)). If the aggregate
insured loss is less than $27.5 billion, the law requires recoupment of 133% of the government
outlays (Column H). For insured losses over $27.5 billion, the mandatory recoupment amount
decreases, thus the Secretary would be required to recoup less than 133% of the outlays.
Depending on the precise deductible amounts, the uncompensated industry losses (Column D)
may eventually rise to be greater than $27.5 billion, which would then mean that the mandatory
recoupment provisions would not apply. The Secretary would still retain discretionary authority to
apply recoupment surcharges no matter what level uncompensated losses reached.
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Table A-1. Example of TRIA Recoupment Calculations
($ billions)
Column A
Column B
Column C
Column D
Column E
Column F
Column G
Column H
Insurance
Insurer 15%
Industry
Government
Aggregate
Amount
share of
Un-
85% share of
Retention
Mandatory
Required
Theoretical Theoretical
Insured
compensate
Insured
Amount
Recoupment
to be
Insured
Insurer
Losses
d losses
Losses
(A or
Amount
Recouped
Losses
Deductible (0.15x(A-B))
(B+C)
(0.85x(A-B))
$27,500)
(F-D)
(Gx1.33)
$0.1 $0.03 $0.01 $0.04 $0.06 $0.1 $0.06 $0.08
$0.5 $0.15 $0.05 $0.2 $0.3 $0.5 $0.3 $0.4
$1.0 $0.3 $0.1 $0.4 $0.6 $1.0 $0.6 $0.8
$5.0 $1.5 $0.5 $2.0 $3.0 $5.0 $3.0 $4.0
$10.0 $3.0 $1.1 $4.1 $6.0 $10.0 $6.0 $7.9
$20.0 $6.0 $2.1 $8.1 $11.9 $20.0 $11.9 $15.8
$27.5 $8.3 $2.9 $11.1 $16.4 $27.5 $16.4 $21.8
$30.0 $9.0 $3.2 $12.2 $17.9 $27.5 $15.4 $20.4
$50.0 $15.0 $5.3 $20.3 $29.8 $27.5 $7.3 $9.6
$75.0 $22.5 $7.9 $30.4 $44.6 $27.5 $0
$0
$100.0 $30.0 $10.5 $40.5 $59.5 $27.5 $0
$0
Source: U.S. Treasury, TRIA Statute as amended; calculations by CRS.
Notes: Totals may not sum due to rounding. For illustrative purposes, the deductible size set at 30% of the
insured loss size; actual deductible will vary depending on the distribution of events.

Author Contact Information

Baird Webel

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


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