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February 1, 2019
The Terrorism Risk Insurance Act (TRIA)
Prior to the September 11, 2001, terrorist attacks, insurance
government coverage of insurer losses. TRIA is limited to
covering terrorism losses was normally included in
commercial property and casualty insurance. It does not
commercial insurance policies without additional cost to the
cover losses in health or life insurance, nor does it is cover
policyholders. The insured losses on all insurance lines
losses in personal property lines, such as homeowners
from the September 11 attacks exceeded $45 billion in
insurance.
current dollars, an amount well above other insurance
industry experiences with terrorism losses. For example,
In the years following 2002, terrorism insurance became
Figure 1 compares the losses in property insurance lines
widely available and largely affordable, and the insurance
from the September 11 attacks to the total of the rest of the
industry greatly expanded its financial capacity. There has
20 largest terrorist attacks worldwide both before and since
been, however, little apparent success in developing a
2001.
longer-term private solution, and fears have persisted about
the economic consequences if terrorism insurance were not
Figure 1. Insured Property Losses from Terrorism
available. Thus, although explicitly designed as a three-year
program, TRIA has been extended several times since
2002; it is currently set to expire at the end of 2020.
The precise program details under TRIA have been adjusted
by Congress over time, particularly (1) the program trigger,
an aggregate annual minimum loss threshold below which
no government loss-sharing occurs; (2) the federal share of
insured losses; (3) the insurer deductible, an amount based
on each insurer’s premium volume; and (4) the insurer
aggregate retention amount, the losses retained by the
insurers if post-attack recoupment occurs. In addition to
these thresholds, a single attack must cause a minimum of
Source: Insurance Information Institute.
$5 million in insured damages to be certified under TRIA.
Note: Amounts are adjusted for inflation to 2017 and may not sum
No attack has been certified under the act and no federal
due to rounding.
payments have been made.
Following September 2001, insurers and reinsurers pulled
TRIA Extension
back from offering terrorism coverage. Some observers
Congress has passed three extensions to the TRIA program,
feared that a lack of insurance against terrorism loss would
in 2005 (P.L. 109-144), in 2007 (P.L. 110-160), and in 2015
have a wide economic impact, particularly because
(P.L. 114-1). The 2005 extension primarily focused on
insurance coverage can be a significant factor in lending
reducing the government’s upfront financial exposure under
decisions.
the act, whereas the 2007 extension left most of the upfront
aspect of the TRIA program unchanged but accelerated the
Congress responded to the disruption in the insurance
post-event recoupment provisions. The 2007 legislation
market by passing the Terrorism Risk Insurance Act of
also included the only expansion of the TRIA program
2002 (TRIA; P.L. 107-297). TRIA created a temporary
since initial enactment: it extended the program to cover
program, expiring at the end of 2005, to calm markets
any acts of terrorism, as opposed to only foreign acts of
through a government reinsurance program sharing in
terrorism.
terrorism losses. This program was intended to give the
insurance industry time to gather the data and create the
P.L. 110-160 extended TRIA to the end of 2014, but no
structures and capacity necessary for private insurance to
extension legislation was enacted in this timeframe. Thus,
cover terrorism risk.
the program expired for 12 days until P.L. 114-1 was signed
by the President in January 2015. This law extended the
TRIA did (and does) not cover terrorism losses directly but
program nearly six years, until the end of 2020, while
instead reimburses private insurers for a portion of their
reducing the government’s share of the losses compared
losses. The act does not require premiums to be paid by
with the program as it was in 2014. Specifically, P.L. 114-1
private insurers for the government coverage. However, it
gradually (1) increases the program trigger from $100
does require private insurers to offer commercial insurance
million to $200 million, (2) reduces the government share
for terrorism risk, which private insurers were not willingly
of the losses from 85% to 80%, and (3) increases the insurer
offering prior to TRIA’s enactment. In addition, TRIA
aggregate retention amount from $27.5 billion to $37.5
provides that the government recoups some or all federal
payments under the act from insurers in the years following
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The Terrorism Risk Insurance Act (TRIA)
billion and indexes it to the sum of insurer deductibles in
Mandatory recoupment would be required to be completed
years thereafter.
by 2024 and would be equal to 140% of the difference
between the aggregate retention amount and the total
The Terrorism Insurance Marketplace
amount of insured losses that were not reimbursed by the
Prior to 2015, data regarding the market for terrorism
government. The aggregate retention amount is defined as
insurance was somewhat inconsistent because state
the lesser of $37.5 billion or the total amount of insured
regulators have historically not required granular reporting
losses. The Treasury Secretary has the authority to extend
by insurers on terrorism coverage. Most terrorism insurance
recoupment to include all losses reimbursed by the
statistics were gathered by private surveys. This changed
government, but this discretionary premium surcharge may
following P.L. 114-1 as Congress required Treasury to
not exceed 3%.
collect specific data and the state regulators also
strengthened their data reporting requirements.
Policy Issues in TRIA Reauthorizations
Although the temporary TRIA program has been
Analyses by Treasury with both the newer data and
reauthorized for 15 years past its initial three-year term,
previous data have generally seen TRIA as supporting a
various questions about TRIA have been raised over the
terrorism insurance market that is generally stable with
years and may be raised again in the 116th Congress. Such
available and affordable insurance. Estimates for the
questions could include the following:
number of policyholders purchasing terrorism coverage
have ranged from around 60% in previous private surveys
Is TRIA still needed? If so, how long should
to nearly 80% in the 2017 Treasury data. The total
reauthorization last?
premiums for all TRIA-eligible lines of insurance was
Past reauthorizations have ranged from two years to seven
$209.15 billion in 2017, with approximately $3.65 billion
years and, in each case, some have argued that it is actually
or 1.75% attributed to terrorism risk premiums. (This figure
time to allow the program to expire and return terrorism
includes affiliated insurers known as captives.) Nearly 30%
risk solely to the private sector rather than reauthorize for
of the terrorism coverage is provided as part of broader
any length of time.
insurance without a specific charge. In total, Treasury
estimates that $45 billion in terrorism insurance premiums
Should the private-sector contribution to TRIA
have been received by private insurers since 2003.
change?
The amount of risk borne by the private sector has
Although the terrorism insurance marketplace appears
increased since initial TRIA passage, with increased
relatively robust, this occurs within the context of the
triggers, deductibles, and private share in terrorism losses.
federal backstop for terrorism coverage. The large majority
The post-event recoupment has increased as well.
of terrorism insurance coverage is written eligible for
Continuing this trend, however, could eventually result in
TRIA, with Treasury finding that, for example, 80% of the
TRIA effectively sharing little terrorism risk and blunting
standalone terrorism policies in 2017 were TRIA-eligible.
the effectiveness of the program in the event of a terrorist
Whether private coverage would remain available and
attack. Alternatively, upfront premiums could be charged
affordable without TRIA is uncertain.
for the government coverage, although this would constitute
a more substantial change to TRIA’s program design.
How Would TRIA Work in 2019?
In the aftermath of a terrorist attack, the first step would be
Should TRIA specifically address nuclear, chemical,
for private insurers to pay claims under whatever terms are
biological, or radiological (NCBR) terrorist events?
in place in the existing policies. Insurers would then submit
NCBR events are the most likely to inflict large losses due
for partial reimbursement to the Treasury. For
to a terrorist attack. Such attacks, however, may not
reimbursements under TRIA to occur, the Secretary of the
actually result in full coverage under TRIA because the
Treasury must certify the attack, including that the single
underlying private policies may effectively exclude NCBR
attack caused more than $5 million in losses. Next, the total
events.
aggregate annual terrorism losses in 2019 must be greater
than $180 million. After these industry-wide thresholds are
Should TRIA specifically address cyberterrorism?
met, each individual insurer is responsible for a deductible
Following the last reauthorization, the Treasury Department
equal to 24% of its premiums on TRIA-eligible lines of
issued guidance clarifying that the “cyber-liability” line of
insurance. The Treasury would then reimburse the insurers
insurance, introduced by state regulators in 2016, would be
81% of their losses from the terrorist attack above this
included as property/casualty insurance under TRIA. A
deductible.
cyberterrorist event, however, must meet all other
thresholds in TRIA, which might reduce TRIA’s
What Would Happen After 2019?
applicability to such cyberattacks.
In the years from 2020 to 2024, TRIA’s recoupment
provisions would take effect. The Secretary of the Treasury
CRS Resource
would be required to recoup some or all of the
CRS Report R43849, Terrorism Risk Insurance Legislation
reimbursements to specific insurers by placing a premium
in the 114th Congress: Issue Summary and Side-by-Side
surcharge on all the insurers offering commercial
Analysis, by Baird Webel
property/casualty insurance covered by TRIA. (This
surcharge may vary for different lines of insurance and
Baird Webel, Specialist in Financial Economics
different geographic areas.)
IF11090
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The Terrorism Risk Insurance Act (TRIA)
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https://crsreports.congress.gov | IF11090 · VERSION 2 · NEW