Terrorism Risk Insurance

Publication Date: July 2004

Publisher: Library of Congress. Congressional Research Service

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Research Area: Business

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Abstract:

After the September 2001 terrorist attacks, many businesses were no longer able to purchase insurance to protect against property losses that might occur in any future terrorist attacks. Congress thus enacted the Terrorism Risk Insurance Act of 2002 (P.L. 107-297, TRIA) to create a temporary program to share future insured terrorism losses with the property-casualty insurance industry and policyholders. The act requires insurers to offer terrorism insurance to their commercial policyholders, preserves state regulation of this type of insurance, and directs the Secretary of the Treasury to administer the program of sharing losses. TRIA created a three-year program administered by the Treasury to back up commercial property and casualty insurance, covering up to $100 billion each year after set insurer deductibles. The government pays 90% of insured losses over the deductible, with the insurer paying 10% . The terrorism insurance law also voids all terrorism exclusions in contracts for property and casualty insurance. It requires insurers that had, after September 11, excluded coverage for future terrorist attacks to reinstate that coverage. These "make available" provisions in the statute are to be in effect until the end of 2004, with an option by the Secretary of the Treasury to extend them for a year. The Secretary exercised this option in June 18, 2004 and thus the make available provisions will be in effect until the end of 2005. TRIA also significantly bolsters the role of the Federal Reserve as the economy's emergency lender of last resort.