The Terrorism Risk Insurance Act (TRIA) is a United States federal law signed into law by President George W. Bush

George W. Bush

George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....

 on November 26, 2002. The Act created a federal "backstop" for insurance

Insurance

In law and economics, insurance is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for payment. An insurer is a company selling the...

 claims related to acts of terrorism

Terrorism

Terrorism is the systematic use of terror, especially as a means of coercion. In the international community, however, terrorism has no universally agreed, legally binding, criminal law definition...

. The Act is intended as a temporary measure to allow time for the insurance industry to develop their own solutions and products to insure against acts of terrorism. The Act was set to expire December 31, 2005, but was extended for another two years in legislation in December 2005, making the new expiry date December 31, 2007.

On December 26, 2007, the Act was again extended under the Terrorism Risk Insurance Program Reauthorization Act, which extends the Terrorism Risk Insurance Act through Dec. 31, 2014.

Function

TRIA created a U.S. government reinsurance facility to provide reinsurance

Reinsurance

Reinsurance is insurance that is purchased by an insurance company from another insurance company as a means of risk management...

coverage to insurance companies following a declared terrorism event. TRIA is a short-term measure designed to help the insurance market recover from 9/11 and develop solutions to insuring terrorism.

TRIA established the Federal Terrorism Insurance Program to administer a system of shared public/private compensation for insured losses resulting from acts of terrorism in order to protect consumers and create transitional period for private insurance markets to stabilize

Governance

The Secretary of the Treasury oversees the Terrorism Insurance Program. The Secretary has authority to establish regulations and procedures to implement program.

Definition of terrorism

The term “act of terrorism” is defined in the act as: any act certified by the Secretary of Treasury, in concurrence with the Secretary of State and Attorney General, to be an act that is dangerous to human life, property, or infrastructure and to have resulted in damage within the U.S. (or outside the U.S. in the case of a U.S.-flagged vessel), or on the premises of a U.S. mission.

In the 2002 version, the act of terrorism was defined to have been committed by individual(s) acting on behalf of a foreign person or foreign interest as part of an effort to coerce the U.S. population or government. In the 2007 reauthorization the definition was broadened to include acts by persons with no foreign affiliation.

Losses from the act must exceed $50 million in 2006 – up from the original $5 million trigger. In 2007, that trigger rose to $100 million.

Structure of assistance

• Eligibility of Insurers: An eligible insurer is any entity or affiliate that:

-Is a recipient of direct earned premiums for any type of commercial property and casualty insurance coverage;

-Is licensed (or admitted) to provide insurance in any State, approved for the purpose of offering property and casualty insurance by a Federal agency in connection with maritime, energy, or aviation activity, or is a State residual market insurance entity or State workers’ compensation fund

-And meets any other criteria that the Secretary may reasonably prescribe.

• Program Trigger: Program is triggered following occurrence of event determined by Secretary of the Treasury to be act of terrorism. Losses from the act must exceed $50 million in 2006 and $100 million in 2007

• Individual Company Trigger (or Deductible): Trigger or deductible for individual company is 17.5 percent of premiums in 2006 and 20% in 2007.

• Industry-wide Retention: The industry as a whole must cover a certain amount of the losses before federal assistance is available. This amount rises from $15 billion in 2005 to $25 billion in 2006 and rises again in 2007 to $27.5 billion. The difference between this amount and the aggregate amount that insurers must pay (deductibles and co-payments) can be recouped from commercial policyholders through a surcharge not to exceed 3 percent of premium for insurance coverages that fall under the TRIEA program. This reinsurance takes the form of a 90 percent quota share in excess of variable deductibles based upon a percentage of earned premium income.

• Cap on Assistance: $100 billion per year

• Post Trigger Federal Assistance: When program is triggered, Federal government is to pay 90% of insured terrorism losses in excess of individual insurer trigger/deductibles while the insurer pays 10%. In 2007, this rises to 85 %/15%.

• Recoupment of Assistance: Recoupment to be through surcharges of up to 3% of annual premiums on all policyholders. Mandatory recoupment for all amounts provided to insurers under industry-wide retention. No mandatory recoupment of uncompensated losses in excess of industry-wide retention. Secretary of the Treasury has discretion to recoup additional amounts.

• Covered Lines: Commercial, plus war coverage for workers’ compensation; excludes reinsurance. Secretary of the Treasury has discretion to add group life insurance and other personal lines.

• Mandatory Terrorism Coverage: For the first two years, insurers must offer terrorism insurance in all commercial policies. Coverage must be available on terms identical to terms, amounts, and other coverage limitations applicable to losses incurred from events other than acts of terrorism.

• Application to State Residual Market Entities and State Workers Compensation Funds: Residual market entities and State funds are included in the insurers covered by the Act. The Act also applies to surplus lines carriers listed on the Quarterly Listing of Alien Insurers published by the National Association of Insurance Commissioners. In addition, captive insurers and other self-insurance arrangements such as workers compensation self-insurance programs and State workers compensation reinsurance pools are included.

• Cost Disclosure of Terrorism Coverage: Insurers must disclose terrorism insurance premiums and the existence of the federal backstop.

• Consultation with State Insurance Regulators (NAIC): As the Secretary of Treasury determines appropriate, concerning the Terrorism Insurance Program.

• State Regulation Uniformity: No stated uniformity.

• Civil Actions and Litigation: Federal cause of action in district court(s) designated by Judicial Panel on Multi-district Litigation with the substantive law of the state in which the act occurred applied.

• Legal Modifications and Limitations: Punitive damages do not constitute “insured losses” and thus no federal participation. U.S. right of subrogation.

• Reports from Insurers: No reports required, except for data not available to NAIC. Secretary of Treasury responsible for compiling of data.

• State Pre-emption: Applicable to terrorism definition and state prior approval rating statutes. Also applies to existing terrorism exclusions, with provisions for reinstatement under certain conditions. Access to books/records by Secretary of Treasury guaranteed.

• Civil Monetary Penalties: $100 million against insurers for failing to pay assessments or surcharges, erroneous data, or violation of regulations.

• Report to Congress: Secretary of the Treasury, in consultation with NAIC, the insurance industry and other experts, is to issue a report not later than June 30, 2005, covering required items.

• Satisfaction of Judgments from Assets of Terrorists: No.

External links

• Terrorism Risk Insurance Program on the U.S. Department of the Treasury site