Actuarial Notes

Terrorism Risk Insurance: Overview and Issue Analysis for the 116th Congress

By Baird Webel · Congressional Research Service · 2019 · CRS R45707

Study guide: Exam 6U

A Congressional Research Service report (updated December 27, 2019) on terrorism risk insurance and the federal Terrorism Risk Insurance Act (TRIA) program. It describes the goals and specifics of the current program, the coverage of nonconventional attacks, the insurability of terrorism risk and the terrorism insurance market before and after TRIA, and it compares the program's reauthorizations in a side-by-side table.

On the syllabus

  • Exam 6U — objectives B1–B2; the Summary page and pp. 1–10, stopping at The Terrorism Insurance Market (CRS R45707, updated December 27, 2019, as the content outline states it)

Summary

  • Before September 11, 2001, coverage for terrorism losses was normally included in general insurance policies at no additional cost; afterwards it became expensive, if offered at all.
  • Congress responded with the Terrorism Risk Insurance Act of 2002 (TRIA; P.L. 107-297), a temporary three-year Terrorism Insurance Program under which the government shares losses on commercial property and casualty insurance after a foreign terrorist attack, with potential recoupment afterwards.
  • TRIA requires insurers to make terrorism coverage available to commercial policyholders but does not require policyholders to purchase it; the program was extended in 2005, 2007 and 2015, and P.L. 116-94, enacted December 20, 2019, extended it to December 31, 2027.
  • The current program has a 5 million threshold for a certified act, a 180 million aggregate industry threshold (rising to 200 million in 2020), an insurer deductible of 20% of annual premiums and a government share of 81% of insured losses (80% in 2020); the Secretary of the Treasury must recoup 140% of outlays when insured losses are under 37.5 billion.

Introduction

Terrorism Risk Insurance Program Reauthorization Act of 2019 (P.L. 116-94; H.R. 4634; S. 2877)

Goals and Specifics of the Current TRIA Program

  • Terrorism Loss Sharing Criteria
    • Initial Loss Sharing
    • Recoupment Provisions
    • Program Administration
  • TRIA Consumer Protections
  • Preservation of State Insurance Regulation

Coverage for Nonconventional Terrorism Attacks

  • Nuclear, Biological, Chemical, and Radiological Terrorism Coverage
  • Cyberterrorism Coverage

Background on Terrorism Insurance

  • Insurability of Terrorism Risk
  • International Experience with Terrorism Risk Insurance
  • Previous U.S. Experience with "Uninsurable" Risks

The Terrorism Insurance Market

  • Post-9/11 and Pre-TRIA
  • After TRIA

Evolution of Terrorism Risk Insurance Laws

Appendix Calculation of TRIA Recoupment Amounts

Sources