The Terrorism Risk Insurance Act of 2002, its amendments, associated regulations, and other materials related to the program are complex, largely untested in practice, and have been subject to few judicial or administrative proceedings. This book is intended to provide a framework for the insurance professional to assist him or her to consider the effectiveness of an insurer’s operations and preparations.
In making decisions or taking actions relating to the Terrorism Risk Insurance Act, an insurance professional or any other person with an interest in this topic should secure appropriate legal or other professional advice. This book does not provide legal advice or any other professional advice. Descriptions of potential policies, processes and controls and other content represent concepts that the reader may wish to consider but are in no way intended to suggest, promote, or establish a standard or practice.
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The Terrorism Risk Insurance Act (TRIA) first became law in late 2002. Just more than a year after the tragedy of September 11, the prospect that we may face another attack of such magnitude felt very real. Insurance professionals pored over every word that came out of the United States Treasury as this multi-billion-dollar reinsurance program began to form for what was expected to be less than four years of existence.
Nearly two decades later, TRIA remains with us, having silently protected US businesses and the economy from the risk of a terrorist attack. Over that time, the program has gone through several periods of change. With each cycle of scheduled expiration and renewal, Congress modified important but often-subtle elements of the program.
During the run-up to the 2015 renewal, I found that policymakers, regulators, and insurers were revisiting many of the same questions, proposals, and ideas that had been introduced and often resolved years earlier. If our collective understanding of how and why the program got to where it is today has started to slip away with the passage of time, I began to wonder whether our collective and individual understandings of the mechanics of the program—the nuts and bolts of TRIA—had deteriorated as well.
TRIA is a lifeline to the insurance industry and, by extension, to the businesses that make the US economy run. The program must work but it will only do so if each of TRIA’s stakeholders (policyholders, insurers, regulators, and policymakers) understands its respective responsibilities and discharges them effectively. My hope is that this book contributes to the insurance industry’s practical knowledge of this program so that it is well prepared, if called upon, to serve as the backbone of our nation’s economic recovery as it did in 2001.
I initially published this book as a paperback under the title The Terrorism Risk Insurance Act: A Practitioner’s Guide in 2016. For this edition, I have revised the content and added new material shedding light on the functioning of the program. More importantly, I decided to transfer rights in the book and website to the Centers for Better Insurance, LLC in order to make these resources freely available to the public via the internet. The Centers for Better Insurance, LLC operates on a non-profit basis and without any outside funding.
Jason M. Schupp, Member, Centers for Better Insurance, LLC
The Terrorism Risk Insurance Act arrived at a critical time in the US recovery from the tragedy of September 11, 2001. In the months and years after the attack, the property and casualty insurance industry paid out tens of billions of dollars to families that had lost loved ones, to wage earners that could no longer work and to business owners that sought to rebuild. Just as the rest of American society had to come to grips with the new reality of terrorism, the insurance industry struggled to find ways to effectively commit its financial resources to respond to another attack without risking the very viability of the industry.
Congress responded with an artfully designed program that promised the financial strength of the United States as a bulwark against industry ruin while leaving a vast area of terrorism insurance capacity for private markets to fill. Over nearly two decades, the private market has progressively stretched to build its terrorism insurance capacity while Treasury has operated at little cost to taxpayers what must be one of the largest reinsurance operations ever constructed. As a result, businesses throughout the US are able to obtain terrorism insurance coverage with confidence that the industry will have the financial strength to pay their claims should the worst occur.
While the program has proven highly effective in stabilizing the terrorism insurance market on the front-end, the program is completely untested in its ability to efficiently and effectively deliver after a terrorist attack. Fortunately, there has been no occasion to challenge the insurance industry’s capability to properly assemble and state claims for reimbursement or the program’s capability to respond to those requests. Should that day come, property and casualty insurers must fully understand their role in the program in order to be well prepared to quickly and decisively step up again to serve as an indispensable primer of this nation’s economic recovery.