Jeffrey Wade
Terrorism risk insurance is a type of insurance coverage that protects against losses resulting from acts of terrorism. Due to the large-scale risk and potential financial losses associated with terrorism, insurers initially considered terrorism an uninsurable risk and sought to exclude it from commercial insurance coverage. However, following the 9/11 attacks, the Terrorism Risk Insurance Act (TRIA) was introduced in the United States to require insurers to offer terrorism coverage. The Act established a Terrorism Insurance Program within the Department of the Treasury, which includes evaluating the availability and affordability of terrorism risk insurance. The program has been reauthorized multiple times, with the most recent reauthorization extending it through 2020. State insurance regulators also collect data related to terrorism risk insurance to monitor its affordability and availability.
| Characteristics | Values |
|---|---|
| Purpose | To pay the Federal share of compensation for insured losses resulting from acts of terrorism |
| Coverage | All property and casualty insurance policies |
| Administration | Department of the Treasury, administered by the Secretary of the Treasury |
| Mandatory | Yes, for insurers to offer terrorism coverage |
| Reauthorization | Signed into law by the President in 2002, 2005, 2007, 2015, and 2019 |
| Data Collection | State insurance regulators collect data related to terrorism risk insurance |
| Exclusions | Crop insurance, private mortgage insurance, title insurance, financial guaranty insurance, medical malpractice insurance, health or life insurance, flood insurance, reinsurance, commercial auto, burglary and theft, professional liability, and farm-owners multiple peril |
| Affordability | The Secretary of the Treasury must evaluate the affordability of terrorism risk insurance, including for places of worship |
| Reimbursement | The reimbursement level for covered terrorism losses exceeding the deductible is 80% |
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What You'll Learn
Terrorism Risk Insurance Act (TRIA)
The Terrorism Risk Insurance Act (TRIA) was passed by the U.S. Congress in 2002 in response to the September 11, 2001, attacks on the World Trade Center and the Pentagon. Before the attacks, terrorism coverage was typically included in general insurance policies at no extra cost to the insured. However, after the attacks, insurers defined terrorism as an uninsurable risk, and coverage became extremely expensive and scarce. TRIA was created as a temporary three-year federal program to address this issue, and it has since been renewed five times: in 2005, 2007, 2015, 2019, and 2027.
TRIA requires insurers to offer terrorism coverage to commercial policyholders, although it does not mandate the purchase of this coverage. The Act establishes a Terrorism Insurance Program within the Department of the Treasury, which is administered by the Secretary of the Treasury. This program aims to share monetary losses with insurers on commercial property/casualty (P/C) losses resulting from terrorist attacks. The Secretary of the Treasury has the discretion to determine when claims for insured losses or acts of terrorism are final and has the authority to apply the program to other types of captive insurers and self-insurance arrangements.
TRIA also includes specific exclusions, such as crop insurance, private mortgage insurance, title insurance, financial guaranty insurance, medical malpractice insurance, health or life insurance, flood insurance, and reinsurance. It mandates insurer participation and sets a transition period followed by an initial program period from January 1, 2003, to December 31, 2005, during which insurers must make available coverage for insured losses in all property and casualty insurance policies. The Act also directs the Secretary of the Treasury to study and report to Congress on the program's effectiveness, the capacity of the insurance industry to offer terrorism risk insurance, and the availability and affordability of such insurance for various policyholders.
The Terrorism Risk Insurance Act has been reauthorized multiple times to extend its duration. The most recent reauthorization, the Terrorism Risk Insurance Program Reauthorization Act of 2019, was signed into law on December 20, 2019, extending the program through December 31, 2027. State insurance regulators have also played a crucial role in collecting data related to terrorism risk insurance since 2016, working in collaboration with the U.S. Department of the Treasury to monitor the affordability and availability of insurance coverage for acts of terrorism.
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Terrorism Risk Insurance Program
The Terrorism Risk Insurance Act (TRIA) was signed into law by the President of the United States on November 26, 2002. The Act was created to address disruptions in the market for terrorism risk insurance, to ensure the availability and affordability of commercial property and casualty insurance for terrorism risk, and to allow private markets to stabilize and build insurance capacity to absorb future losses from terrorism events.
TRIA was initially a temporary three-year federal program that allowed the federal government to share monetary losses with insurers on commercial property and casualty losses resulting from terrorist attacks. The Act requires insurers to offer terrorism coverage but does not mandate that insureds purchase it. However, it specifically excludes crop insurance, private mortgage insurance, title insurance, financial guaranty insurance, medical malpractice insurance, health or life insurance, flood insurance, or reinsurance.
Since its inception, TRIA has been renewed five times. On December 22, 2005, the Terrorism Risk Insurance Extension Act of 2005 was signed into law, extending TRIP through December 31, 2007. On December 26, 2007, the Terrorism Risk Insurance Program Reauthorization Act of 2007 was signed into law, further extending TRIP through December 31, 2014. The Act was again reauthorized in 2015 and 2019, with the current reauthorization slated to expire on December 31, 2027.
The 2019 reauthorization made several changes, including mandating that the Secretary of the Treasury include an evaluation of the availability and affordability of terrorism risk insurance, specifically for places of worship, in its biennial report to Congress. It also required the U.S. Government Accountability Office (GAO) to conduct a study on cyberterrorism risks and the potential costs of cyberattacks.
State insurance regulators began collecting data related to terrorism risk insurance in 2016, and in 2018, Treasury and the States adopted a consolidated approach to data collection. The Treasury has also published guidance for insurers regarding rate filings and policy language to protect U.S. businesses from acts of terrorism.
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Insurer exclusions
In the context of terrorism risk insurance, there are several notable insurer exclusions:
- Commercial insurance: Following the 9/11 attacks, insurers defined terrorism as an uninsurable risk. As a result, 45 states in the US, along with Washington, D.C., Guam, and Puerto Rico, approved the exclusion of terrorism coverage from commercial insurance policies. This left very few companies with protection against terrorist actions in the immediate aftermath of 9/11.
- Life insurance: Terrorism Risk Insurance Act (TRIA) does not specifically mention life insurance, but it does exclude health insurance, which can be interpreted to include life insurance. However, life insurance policies do not typically contain terrorism exclusions, and proceeds will be paid to the designated beneficiary in the event of a terrorist attack.
- Crop insurance, private mortgage insurance, title insurance, financial guaranty insurance, medical malpractice insurance, flood insurance, and reinsurance: These types of insurance are specifically excluded from the Terrorism Risk Insurance Act.
- Commercial auto, burglary and theft, professional liability (except for directors and officers' liability), and farm-owners multiple peril: These are also excluded from the Act.
- War and NBCR events: War risk exclusions are standard in both personal and commercial insurance policies. Acts of war are almost never covered due to their fundamentally uninsurable nature. Similarly, NBCR events may be excluded as certain man-made catastrophic events are considered uninsurable. However, if a state permits NBCR exclusions, insurers in that state are not obligated to offer the excluded coverage.
It is important to note that workers' compensation insurance is an exception and cannot exclude coverage for terrorist acts or acts of war. This is the only line of insurance that provides coverage for injury or death resulting from acts of war.
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Federal intervention
In the aftermath of the 9/11 attacks, insurers defined terrorism as an uninsurable risk. The Insurance Services Office (ISO) asked all U.S. states for permission to exclude terrorism from all commercial insurance coverage. Ultimately, 45 states, as well as Washington, DC, Guam, and Puerto Rico, approved the new policy language. As a result, very few companies had protection against terrorist actions in the year following the 9/11 attacks. This led to calls for federal intervention.
The federal intervention came in the form of the Terrorism Risk Insurance Act (TRIA) of 2002, which was signed into law by the President on November 26, 2002. The Act established a three-year Terrorism Insurance Program in the Department of the Treasury, administered by the Secretary of the Treasury. The Program was designed to pay the Federal share of compensation for insured losses resulting from acts of terrorism. It mandated insurer participation and set forth a transition period followed by an initial program period from January 1, 2003, to December 31, 2005, during which insurers were required to make available coverage for insured losses in all property and casualty insurance policies. The Act also preempted and nullified any pre-existing terrorism exclusion clauses in insurance contracts, ensuring that insured losses resulting from acts of terrorism would be covered.
The Terrorism Risk Insurance Act of 2002 has been extended and reauthorized multiple times since its inception. In 2005, the President signed the Terrorism Risk Insurance Extension Act, which extended the program through December 31, 2007. This was followed by the Terrorism Risk Insurance Program Reauthorization Act of 2007, which further extended the program through December 31, 2014. The program was again reauthorized in 2015 and 2019, with the most recent reauthorization extending the program through December 31, 2020.
The federal government continues to play an active role in the terrorism risk insurance landscape. State insurance regulators and the Treasury Department regularly collect data related to terrorism risk insurance to monitor the affordability and availability of insurance coverage for acts of terrorism. The Treasury Department has also published rules and guidelines for the implementation and administration of the Terrorism Risk Insurance Program.
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Data collection
The data collection process for terrorism risk insurance has evolved over the years. Here's an overview:
- Historical Data Collection (before 2018): Prior to 2018, data concerning terrorism risk insurance was collected separately by the U.S. Department of the Treasury and state insurance regulators. This process was in place since the enactment of TRIA in 2002 and its subsequent reauthorizations in 2005, 2007, and 2015.
- Consolidated Approach (from 2018): Beginning in 2018, a consolidated collection approach was introduced. This approach allows companies to submit the same information to both the Treasury and state insurance regulators, including the National Association of Insurance Commissioners (NAIC). This streamlined process enhances efficiency and ensures consistent data collection across the country.
- Annual Data Call: The Treasury, in collaboration with state insurance regulators and NAIC, conducts an annual data call, inviting insurers to register and submit relevant data. This process is mandatory for insurers writing commercial property/casualty policies subject to TRIP. The data call typically focuses on the previous calendar year's information.
- Data Submission: Insurers are required to submit data using specific templates, such as Non-Small Insurers, Small Insurers, Captive Insurers, and Alien Surplus Lines Insurers. These templates are provided by a data aggregator, and submissions are made through a secure file transfer protocol (SFTP) in .csv or .xls format.
- Exemptions: Certain insurance groups or entities are exempt from reporting requirements if they meet specific criteria, such as having less than $10 million in TRIP-eligible direct earned premium (DEP) in the reporting year. However, captive insurers and alien surplus lines insurers are generally not exempt.
- Public Feedback and Comments: The Treasury invites public feedback on the content of the reporting forms and encourages comments on the proposed data collection forms and processes. Comments can be submitted electronically or by mail, with specific captioning and contact information included.
- Technical Details and Updates: The Treasury provides annual notices, detailing any changes to reporting forms, instructions, and technical specifications. They also notify the public of any material changes to the data collection forms, allowing for transparency and input from stakeholders.
The data collected through TRIP serves several important regulatory objectives:
- Monitoring the affordability and availability of insurance coverage for acts of terrorism.
- Assessing insurers' financial exposure to terrorism risk.
- Evaluating the effectiveness of the TRIP program and providing reports to Congress.
- Ensuring the sustainability of the insurance industry in the event of future terrorist attacks.
Data Submission Platforms:
Insurers are directed to specific platforms for data submission, such as the TRIP Data Call Reporting Portal and the NY Portal. Additionally, resources and instructions are provided on websites like https://www.tripsection111data.com/ and https://home.treasury.gov/policy-issues/financial-markets-financial-institutions-and-fiscal-service/federal-insurance-office/terrorism-risk-insurance-program/annual-data-collection.
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Frequently asked questions
Terrorism risk insurance is a type of insurance coverage that protects against financial losses resulting from acts of terrorism.
Yes, the Terrorism Risk Insurance Act (TRIA) mandates that insurers offer terrorism coverage following the 9/11 attacks.
TRIA establishes a Federal cause of action for claims arising from acts of terrorism and requires the Secretary of the Treasury to evaluate the availability and affordability of terrorism risk insurance.
The Terrorism Risk Insurance Act was passed in 2002, following the 9/11 attacks, and has since been reauthorized multiple times, with the most recent reauthorization in 2019.
Yes, certain types of insurance are excluded from terrorism risk insurance coverage, including crop insurance, private mortgage insurance, title insurance, health or life insurance, and more. Additionally, insurers in states with specific exclusions for certain types of losses, such as nuclear, biological, or chemical events, are not required to cover those risks.
