The Terrorism Risk Insurance Act (TRIA)

The Terrorism Risk Insurance Act (TRIA)

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Updated February 10, 2022
The Terrorism Risk Insurance Act (TRIA)
Prior to the September 11, 2001, terrorist attacks, insurance
losses in personal property lines, such as homeowners
covering terrorism losses was normally included in
insurance.
commercial insurance policies without additional cost to the
policyholders. The insured losses on all insurance lines
Following TRIA’s enactment, terrorism insurance became
from the 9/11 attacks exceeded $50 billion in current
widely available and largely affordable, and the insurance
dollars, an amount well above other insurance industry
industry greatly expanded its financial capacity. There has
experiences with terrorism losses. For example, Figure 1
been, however, little apparent success in developing a
compares the losses in property insurance lines from the
longer-term private solution, and fears have persisted about
9/11 attacks to the total of the rest of the 20 largest terrorist
the economic consequences if terrorism insurance were not
attacks worldwide both before and since 2001.
available. Thus, although explicitly designed as a three-year
program, TRIA has been extended several times since
Figure 1. Insured Property Losses from Terrorism
2002; it is currently set to expire at the end of 2027.
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 worldwide and adjusted for inflation to 2020.
No attack has been certified under the act and no federal
payments have been made.
Following September 2001, insurers and reinsurers pulled
back from offering terrorism coverage. Some observers
TRIA Extension
feared that a lack of insurance against terrorism loss would
Congress has passed four extensions to the TRIA program,
have a wide economic impact, particularly because
in 2005 (P.L. 109-144), 2007 (P.L. 110-160), 2015 (P.L.
insurance coverage can be a significant factor in lending
114-1), and 2019 (P.L. 116-94). The 2005 extension
decisions.
primarily focused on reducing the government’s upfront
financial exposure under the act, whereas the 2007
Congress responded to the disruption in the insurance
extension left most of the upfront aspect of the TRIA
market by passing the Terrorism Risk Insurance Act of
program unchanged but accelerated the post-event
2002 (TRIA; P.L. 107-297). TRIA created a temporary
recoupment provisions. The 2007 legislation also included
program, initially set to expire at the end of 2005, to calm
the only expansion of the TRIA program since initial
markets through a government reinsurance program sharing
enactment: it extended the program to cover any acts of
in terrorism losses. This program was intended to give the
terrorism, as opposed to only foreign acts of terrorism.
insurance industry time to gather the data and create the
structures and capacity necessary for private insurance to
P.L. 110-160 extended TRIA to the end of 2014, but no
cover terrorism risk.
extension legislation was enacted in this timeframe. Thus,
the program expired for 12 days until P.L. 114-1 was signed
TRIA did (and does) not cover terrorism losses directly but
by the President in January 2015. This law extended the
instead reimburses private insurers for a portion of their
program nearly six years, until the end of 2020, while
losses. The act does not require premiums to be paid by
reducing the government’s share of the losses compared
private insurers for the government coverage. However, it
with the program as it was in 2014. Specifically, P.L. 114-1
does require private insurers to offer commercial insurance
gradually (1) increased the program trigger from $100
for terrorism risk, which private insurers were not willingly
million to $200 million, (2) reduced the government share
offering prior to TRIA’s enactment. In addition, TRIA
of the losses from 85% to 80%, and (3) increased the
provides that the government recoups some or all federal
insurer aggregate retention amount from $27.5 billion to
payments under the act from insurers in the years following
$37.5 billion and indexed it to the sum of insurer
government coverage of insurer losses. TRIA is limited to
deductibles in years thereafter. P.L. 116-94 extended TRIA
commercial property and casualty insurance. It does not
to the end of 2027, leaving the rest of the law essentially
cover losses in health or life insurance, nor does it is cover
unchanged.
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The Terrorism Risk Insurance Act (TRIA)
The Terrorism Insurance Marketplace
aggregate retention amount for 2022 is based on aggregate
Prior to 2015, data regarding the market for terrorism
premiums for the previous three years. For 2022, it is the
insurance was somewhat inconsistent because state
lesser of approximately $42.7 billion and the total amount
regulators have historically not required granular reporting
of insured losses. The Treasury Secretary has the authority
by insurers on terrorism coverage. Most terrorism insurance
to extend recoupment to include all losses reimbursed by
statistics were gathered by private surveys. This changed
the government, but this discretionary premium surcharge
following P.L. 114-1 as Congress required Treasury to
may 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 have seen TRIA as supporting a
reauthorized for 22 years past its initial three-year term,
terrorism insurance market that is generally stable with
various questions about TRIA have been raised over the
available and affordable insurance. Estimates for the take-
years. Such questions have included the following:
up rate for terrorism coverage range from around 60% to
nearly 80% depending on what metrics are used. The total
Is TRIA still needed? If so, how long should
premiums for all TRIA-eligible lines of insurance was $214
reauthorization last?
billion in 2019, with an estimated 1.7%, or $3.7 billion,
Past reauthorizations have ranged from two years to seven
attributable to terrorism risk premiums. (This figure
years and, in each case, some have argued that it is actually
includes affiliated insurers known as captives.) Between
time to allow the program to expire and return terrorism
30% and 35% of the terrorism coverage is provided as part
risk solely to the private sector rather than reauthorize for
of broader insurance without a specific charge. In total,
any length of time.
Treasury estimates that insurers have received $51.9 billion
in terrorism insurance premiums from 2003 through 2019.
Should the private-sector contribution to TRIA
change?
Although the terrorism insurance marketplace appears
The amount of risk borne by the private sector has
relatively robust, this occurs within the context of the
increased since initial TRIA passage, with increased
federal backstop for terrorism coverage. The large majority
triggers, deductibles, and private share in terrorism losses.
of terrorism insurance coverage is written eligible for
The post-event recoupment has increased as well.
TRIA, with Treasury finding that, for example, 80% of the
Continuing this trend, however, could eventually result in
standalone terrorism policies in 2019 were TRIA-eligible.
TRIA effectively sharing little terrorism risk and blunting
Whether private coverage would remain available and
the effectiveness of the program in the event of a terrorist
affordable without TRIA is uncertain.
attack. Alternatively, upfront premiums could be charged
for the government coverage, although this would constitute
How Would TRIA Work?
a more substantial change to TRIA’s program design.
In the aftermath of a terrorist attack, the first step would be
for private insurers to pay claims under whatever terms are
Should TRIA specifically address nuclear, chemical,
in place in the existing policies. Insurers would then submit
biological, or radiological (NCBR) terrorist events?
for partial reimbursement to the Treasury. For
NCBR events are the most likely to inflict large losses due
reimbursements under TRIA to occur, the Secretary of the
to a terrorist attack. Such attacks, however, may not
Treasury must certify the attack, including that the single
actually result in full coverage under TRIA because the
attack caused more than $5 million in losses. Next, the total
underlying private policies may effectively exclude NCBR
aggregate annual terrorism losses must be greater than $200
events.
million. After these industry-wide thresholds are met, each
individual insurer is responsible for a deductible equal to
Should TRIA specifically address cyberterrorism?
20% of its premiums on TRIA-eligible lines of insurance.
The underlying TRIA statute is generally silent on the issue
The Treasury would then reimburse the insurers 80% of
of cyberterrorism. In 2016, the Treasury Department issued
their losses from the terrorist attack above this deductible.
guidance clarifying that the “cyber-liability” line of
insurance, introduced by state regulators in 2016, would be
What Would Happen Afterwards?
included as property/casualty insurance under TRIA. A
In the years following the attack, TRIA’s recoupment
cyberterrorist event, however, must meet all other
provisions would take effect. The Secretary of the Treasury
thresholds in TRIA, which might reduce TRIA’s
would be required to recoup some or all of the
applicability to such cyberattacks. P.L. 116-94 required a
reimbursements to specific insurers by placing a premium
Government Accountability Office study and report on
surcharge on all the insurers offering commercial
cyberterrorism insurance.
property/casualty insurance covered by TRIA. (This
surcharge may vary for different lines of insurance and
CRS Resources
different geographic areas.)
CRS Report R45707, Terrorism Risk Insurance: Overview
and Issue Analysis for the 116th Congress, by Baird Webel
Mandatory recoupment is required to be completed by 2029
and would be equal to 140% of the difference between the
Baird Webel, Specialist in Financial Economics
aggregate retention amount and the total amount of insured
losses that were not reimbursed by the government. The
IF11090
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The Terrorism Risk Insurance Act (TRIA)

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