Policy Documents

Research & Commentary: Terrorism Risk Insurance Act Update

October 5, 2011

The uncertain future of the Terrorism Risk Insurance Act (TRIA), which expires in 2014 and was recently the subject of an amendment to sunset it, has some individuals and organizations calling for additional extensions or the creation of a replacement backstop for terrorism policies. Proponents include the Risk & Insurance Management Society and the National Association of Mutual Insurance Companies. 

Under TRIA, signed into law in 2002 by President George W. Bush, if industry-wide private commercial and workers compensation insurance claims from a terrorist attack were to exceed $27.5 billion, the program would cover the remaining expenses up to $100 billion. Congress almost certainly would lift the $100 billion cap if claims exceeded that amount. 

In theory, the money to pay claims would come from a tax (up to 3 percent) on just about every eligible insurance policy in the country. If that tax proved insufficient, Congress would have to use other revenues. 

Opposing further extensions of TRIA are experts from several groups such as The Heritage Foundation and Cato Institute, who contend the private market provides viable options and thus some insurers may be overstating the need for TRIA. Instead of an extension, Congress should allow the market to function, they conclude. 

The following articles address this issue from a variety of perspectives: the insurer, self-described consumer advocates, and consumers.

As 9/11 Anniversary Nears, Senator Plans to Introduce TRIA Sunset
http://www.propertycasualty360.com/2011/09/07/as-9-11-anniversary-nears-senator-plans-to-introdu
This National Underwriter story discusses a proposed amendment that would “sunset” the Terrorism Risk Insurance Act (TRIA) in 2013. Although the amendment was withdrawn, it has brought the issue of TRIA back under discussion. 

Terrorism Risk and Insurance
http://www.iii.org/media/hottopics/insurance/terrorism/
This issue update from the Insurance Information Institute examines terrorism insurance, providing a background analysis of the issues involved and discussing how other countries handle it.

Industry Experts Assess Impact of TRIA
http://www.propertycasualty360.com/2011/09/09/industry-experts-assess-impact-of-tria
Experts from the insurance industry discuss the impact of TRIA in the years following 9/11 in a National Underwriter article. 

Federal Terrorism Risk Insurance
http://heartland.org/policy-documents/federal-terrorism-risk-insurance
A discussion of the economic rationales for and against federal intervention in the market, this paper concludes that establishing a temporary transition program, during which the private sector can build capacity and adapt to a dramatically changed environment for terrorism risk, may provide benefits to the economy exceeding the direct and indirect costs.

Let the Terrorism Risk Insurance Act (TRIA) Expire
http://heartland.org/policy-documents/let-terrorism-risk-insurance-act-tria-expire
The Heritage Foundation contends TRIA is a temporary program that has outlived its purpose and should be allowed to expire.

Insurance Against Terrorism: an Alternative to Unlimited Liability for Taxpayers
http://heartland.org/policy-documents/insurance-against-terrorism
Heartland Institute Vice President Eli Lehrer examines possible alternatives to TRIA in the private market. 

Federal Terrorism Coverage Backstop Remains Vital Tool
http://www.businessinsurance.com/article/20110911/NEWS04/309119985?tags=|306|64|76|73|80|81|88#
Business Insurance argues that TRIA is an important tool for insurers that should be extended. 

Dealing with Extreme Events: New Challenges for Terrorism Risk Coverage in the U.S.
http://heartland.org/policy-documents/dealing-extreme-events-new-challenges-terrorism-risk-coverage-us
Howard Kunreuther and Erwann Michel-Kerjan of the Center for Risk Management and Decision Processes at the Wharton School of the University of Pennsylvania examine the potential role of insurance in providing future protection against terrorism and the challenges facing the private sector in offering this type of coverage without a government backstop. 

Terrorism Risk Insurance Program: Overview
http://www.ustreas.gov/offices/domestic-finance/financial-institution/terrorism-insurance/
The U.S. Treasury Department provides an overview of TRIA, updated information on the program, announcements of all rulemakings, interpretive guidance, and requests for public comments. 

Terrorism Insurance: Status of Coverage Availability for Attacks Involving Nuclear, Biological, Chemical, or Radiological Weapons
http://www.gao.gov/new.items/d0939.pdf
The Government Accountability Office examines the extent to which insurers offer policies covering damage from nuclear, biological, chemical, or radiological weapons and makes policy recommendations on how to improve coverage. 

Government Terrorism Insurance: Déjà Vu(Doo)?
http://www.cato.org/pub_display.php?pub_id=6673
Peter Van Doren, editor of Regulation magazine, discusses the government’s involvement in terrorism insurance and recommends against increasing government subsidies. 

Obama Budget Plan Scales Back TRIA Support
http://www.businessinsurance.com/article/20100201/NEWS/100209998
Business Insurance reports on the Obama administration’s decision in its 2010 budget to scale back government support for the federal terrorism insurance program.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the FIRE Policy News Web site at http://news.heartland.org/insurance-and-finance, The Heartland Institute’s Web site at http://heartland.org, and PolicyBot, Heartland’s free online research database, at www.policybot.org. 

If you have any questions about this issue or The Heartland Institute, contact Heartland Legislative Specialist Matthew Glans at 312/377-4000 or mglans@heartland.org.