Issue Brief

The Terrorism Risk Insurance Act (TRIA): Unique Financing for a Unique Risk

Feb 15, 2017 | Erwann Michel-Kerjan, Howard Kunreuther

Summary

The Terrorism Risk Insurance program in the United States is a successful model for public-private disaster risk financing and has stabilized the terrorism insurance market, though it remains untested for large losses.

Key Findings

  • Disaster financing is a critical element of our national security. The Terrorism Risk Insurance Act (TRIA) of 2002 has played a critical role in stabilizing the terrorism insurance market, making coverage widely available and affordable.
  • Yet this program, set to expire in 2020 unless renewed by Congress and the Trump administration, has not been tested for a truly devastating event on US soil.
  • TRIA is a somewhat unique public-private partnership providing insurance companies with federal reinsurance that covers a portion of insurance industry losses up to $100 billion, should a terrorist attack occur in the country.
  • There is no up-front reinsurance cost imposed on insurers for this protection, but all policyholders—covered against terrorism losses or not—could be assessed after an attack should federal reinsurance be triggered by a catastrophic loss.
  • In return for this protection, the federal government requires all primary insurers in the United States to offer terrorism coverage to commercial clients.
  • The US Treasury estimates that insurers collected $27 billion in TRIA premiums between 2003 and 2015.
  • Under a wide rage of terrorist attack scenarios, insurers will generally pay more than any other stakeholder under TRIA. In fact, the federal government will not be responsible for any payments until the total losses from an attack exceed $60 billion.