February 1 2019 The Terrorism Risk Insurance Act TRIA Prior to the September 11 2001 terrorist attacks insurance covering terrorism losses was normally included in commercial insurance policies without additional cost to the policyholders The insured losses on all insurance lines from the September 11 attacks exceeded $45 billion in current dollars an amount well above other insurance industry experiences with terrorism losses For example Figure 1 compares the losses in property insurance lines from the September 11 attacks to the total of the rest of the 20 largest terrorist attacks worldwide both before and since 2001 Figure 1 Insured Property Losses from Terrorism Source Insurance Information Institute Note Amounts are adjusted for inflation to 2017 and may not sum due to rounding Following September 2001 insurers and reinsurers pulled back from offering terrorism coverage Some observers feared that a lack of insurance against terrorism loss would have a wide economic impact particularly because insurance coverage can be a significant factor in lending decisions Congress responded to the disruption in the insurance market by passing the Terrorism Risk Insurance Act of 2002 TRIA P L 107-297 TRIA created a temporary program expiring at the end of 2005 to calm markets through a government reinsurance program sharing in terrorism losses This program was intended to give the insurance industry time to gather the data and create the structures and capacity necessary for private insurance to cover terrorism risk TRIA did and does not cover terrorism losses directly but instead reimburses private insurers for a portion of their losses The act does not require premiums to be paid by private insurers for the government coverage However it does require private insurers to offer commercial insurance for terrorism risk which private insurers were not willingly offering prior to TRIA’s enactment In addition TRIA provides that the government recoups some or all federal payments under the act from insurers in the years following government coverage of insurer losses TRIA is limited to commercial property and casualty insurance It does not cover losses in health or life insurance nor does it is cover losses in personal property lines such as homeowners insurance In the years following 2002 terrorism insurance became widely available and largely affordable and the insurance industry greatly expanded its financial capacity There has been however little apparent success in developing a longer-term private solution and fears have persisted about the economic consequences if terrorism insurance were not available Thus although explicitly designed as a three-year program TRIA has been extended several times since 2002 it is currently set to expire at the end of 2020 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 $5 million in insured damages to be certified under TRIA No attack has been certified under the act and no federal payments have been made TRIA Extension Congress has passed three extensions to the TRIA program in 2005 P L 109-144 in 2007 P L 110-160 and in 2015 P L 114-1 The 2005 extension primarily focused on reducing the government’s upfront financial exposure under the act whereas the 2007 extension left most of the upfront aspect of the TRIA program unchanged but accelerated the post-event recoupment provisions The 2007 legislation also included the only expansion of the TRIA program since initial enactment it extended the program to cover any acts of terrorism as opposed to only foreign acts of terrorism P L 110-160 extended TRIA to the end of 2014 but no extension legislation was enacted in this timeframe Thus the program expired for 12 days until P L 114-1 was signed by the President in January 2015 This law extended the program nearly six years until the end of 2020 while reducing the government’s share of the losses compared with the program as it was in 2014 Specifically P L 114-1 gradually 1 increases the program trigger from $100 million to $200 million 2 reduces the government share of the losses from 85% to 80% and 3 increases the insurer aggregate retention amount from $27 5 billion to $37 5 https crsreports congress gov The Terrorism Risk Insurance Act TRIA billion and indexes it to the sum of insurer deductibles in years thereafter The Terrorism Insurance Marketplace Prior to 2015 data regarding the market for terrorism insurance was somewhat inconsistent because state regulators have historically not required granular reporting by insurers on terrorism coverage Most terrorism insurance statistics were gathered by private surveys This changed following P L 114-1 as Congress required Treasury to collect specific data and the state regulators also strengthened their data reporting requirements Analyses by Treasury with both the newer data and previous data have generally seen TRIA as supporting a terrorism insurance market that is generally stable with available and affordable insurance Estimates for the number of policyholders purchasing terrorism coverage have ranged from around 60% in previous private surveys to nearly 80% in the 2017 Treasury data The total premiums for all TRIA-eligible lines of insurance was $209 15 billion in 2017 with approximately $3 65 billion or 1 75% attributed to terrorism risk premiums This figure includes affiliated insurers known as captives Nearly 30% of the terrorism coverage is provided as part of broader insurance without a specific charge In total Treasury estimates that $45 billion in terrorism insurance premiums have been received by private insurers since 2003 Although the terrorism insurance marketplace appears relatively robust this occurs within the context of the federal backstop for terrorism coverage The large majority of terrorism insurance coverage is written eligible for TRIA with Treasury finding that for example 80% of the standalone terrorism policies in 2017 were TRIA-eligible Whether private coverage would remain available and affordable without TRIA is uncertain How Would TRIA Work in 2019 In the aftermath of a terrorist attack the first step would be for private insurers to pay claims under whatever terms are in place in the existing policies Insurers would then submit for partial reimbursement to the Treasury For reimbursements under TRIA to occur the Secretary of the Treasury must certify the attack including that the single attack caused more than $5 million in losses Next the total aggregate annual terrorism losses in 2019 must be greater than $180 million After these industry-wide thresholds are met each individual insurer is responsible for a deductible equal to 20% of its premiums on TRIA-eligible lines of insurance The Treasury would then reimburse the insurers 81% of their losses from the terrorist attack above this deductible What Would Happen After 2019 In the years from 2020 to 2024 TRIA’s recoupment provisions would take effect The Secretary of the Treasury would be required to recoup some or all of the reimbursements to specific insurers by placing a premium surcharge on all the insurers offering commercial property casualty insurance covered by TRIA This surcharge may vary for different lines of insurance and different geographic areas Mandatory recoupment would be required to be completed by 2024 and would be equal to 140% of the difference between the aggregate retention amount and the total amount of insured losses that were not reimbursed by the government The aggregate retention amount is defined as the lesser of $37 5 billion or the total amount of insured losses The Treasury Secretary has the authority to extend recoupment to include all losses reimbursed by the government but this discretionary premium surcharge may not exceed 3% Policy Issues in TRIA Reauthorizations Although the temporary TRIA program has been reauthorized for 15 years past its initial three-year term various questions about TRIA have been raised over the years and may be raised again in the 116th Congress Such questions could include the following Is TRIA still needed If so how long should reauthorization last Past reauthorizations have ranged from two years to seven years and in each case some have argued that it is actually time to allow the program to expire and return terrorism risk solely to the private sector rather than reauthorize for any length of time Should the private-sector contribution to TRIA change The amount of risk borne by the private sector has increased since initial TRIA passage with increased triggers deductibles and private share in terrorism losses The post-event recoupment has increased as well Continuing this trend however could eventually result in TRIA effectively sharing little terrorism risk and blunting the effectiveness of the program in the event of a terrorist attack Alternatively upfront premiums could be charged for the government coverage although this would constitute a more substantial change to TRIA’s program design Should TRIA specifically address nuclear chemical biological or radiological NCBR terrorist events NCBR events are the most likely to inflict large losses due to a terrorist attack Such attacks however may not actually result in full coverage under TRIA because the underlying private policies may effectively exclude NCBR events Should TRIA specifically address cyberterrorism Following the last reauthorization the Treasury Department issued guidance clarifying that the “cyber-liability” line of insurance introduced by state regulators in 2016 would be included as property casualty insurance under TRIA A cyberterrorist event however must meet all other thresholds in TRIA which might reduce TRIA’s applicability to such cyberattacks CRS Resource CRS Report R43849 Terrorism Risk Insurance Legislation in the 114th Congress Issue Summary and Side-by-Side Analysis by Baird Webel Baird Webel Specialist in Financial Economics IF11090 https crsreports congress gov The Terrorism Risk Insurance Act TRIA Disclaimer This document was prepared by the Congressional Research Service CRS CRS serves as nonpartisan shared staff to congressional committees and Members of Congress It operates solely at the behest of and under the direction of Congress Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role CRS Reports as a work of the United States Government are not subject to 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