What is the Terrorism Risk Insurance Act?
The Terrorism Risk Insurance Act (TRIA) was initially passed by Congress in 2002 and has been renewed four times since its passage, in 2005, 2007, 2015 and 2019. The current reauthorization expires on December 31, 2027. The Act provides a federal backstop for certain acts of terrorism via a temporary federal program that distributes the risk of loss from terrorist attacks between the federal government and the insurance industry. This federal backstop program is designed to "protect consumers by addressing market disruptions and ensure the continued widespread availability and affordability of property and casualty insurance for terrorism risk."
What types of terrorism events are covered by the Act?
The Act covers those terrorism events that are "certified" by the Secretary of the Treasury, in concurrence with the Secretary of Homeland Security, and the Attorney General of the United States. In order to qualify for certification, a terrorism event must meet the following criteria:
- The act must be a violent act or an act that is dangerous to human life, property or infrastructure.
- The act must have resulted in damage within the United States or outside of the United States in the case of some air carriers, U.S. flag vessels (or vessels based principally in the United States, on which U.S. income taxes is paid and whose insurance coverage is subject to regulation in the U.S.), and at the premises of any United States mission.
- The act must have been committed by an individual or individuals acting, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion.
- The act results in property and casualty insurance losses that exceed $5,000,000 in the aggregate.
No act will be certified as an act of terrorism if the act is committed as part of the course of a war declared by the Congress, except in the case of any coverage that applies to workers compensation insurance.
What types of insurance are covered by the Act?
The Act only applies to commercial property and casualty insurance policies, including workers compensation policies. The Act does not apply to federal crop insurance, federal flood insurance, financial guaranty insurance issued by monoline financial guaranty insurance corporations, medical malpractice insurance, commercial auto insurance, burglary and theft insurance, professional liability insurance (except for directors and officers liability), or farm owners multiple peril insurance. The Act also does not apply to personal insurance policies, such as homeowners policies, private mortgage insurance, title insurance, and personal automobile policies. Finally, the Act does not apply to any health insurance policies or life insurance policies.
What coverage do I have under the Act in the event of a "certified" terrorism event?
If you purchase the federal backstop coverage from your insurer, you will be covered for any property and casualty damage subject to your policy limits.
Does my insurer have to offer this coverage to me?
Yes, the Act mandates that every insurer participate in the federal program and therefore, offer coverage for "certified" terrorism events to policyholders, other than for those lines specifically excluded by the law. However, the Act allows insurers to charge an additional premium for the federal coverage. You should expect to receive a notification from your insurance company that provides you with the amount of the additional premium and offers you the opportunity to opt-out of the coverage by declining to pay the additional premium.
How and when will I be notified of the additional premium and federal coverage?
The Act requires that insurers clearly and conspicuously disclose to policyholders the premium charged for insured losses covered by the Act and notice must be given on a separate line item in the policy at the time of offer, purchase, and renewal of the policy.
How much is the additional premium for the federal coverage?
The amount of the additional premium may vary by insurance company and by the risk posed by the insured property/policyholder. You should speak with your agent/broker or insurer about the additional premium and perhaps look into the premiums charged by other insurers.
How do I know if I need to purchase the federal coverage?
The decision whether to purchase the federal terrorism coverage is a decision that is unique to each policyholder. You should closely evaluate your need for this coverage. Ultimately, only you can decide if you will purchase the additional coverage.
What happens if I do not purchase the federal coverage?
If you choose not to pay the additional premium in order to secure the coverage available under the federal act, the terms of your policy will govern the coverage you will receive (if any) for claims arising out of a terrorism event. However, if upon renewal/reissue of your policy, you do not purchase the federal coverage, you probably will not be covered at all for any damage arising out of a "certified" terrorism event. Your agent/broker or insurer should be able to explain your coverage options.
What coverage is available for terrorism events that are NOT certified under the Act?
In the event of an act of terrorism that is not "certified" and therefore, not governed by the Act, the terms of your policy will govern the coverage you have. Many policies currently include a terrorism exclusion endorsement that excludes coverage for claims that arise from terrorism events that exceed more than $25,000,000 in the aggregate and that exclude coverage for all claims arising from a biological, nuclear, or chemical terrorist event. These endorsements are still valid with respect to any terrorism event that is not "certified." However, policyholders should expect to see new terrorism exclusion endorsements attached to their policies that utilize the same guidelines as the current endorsements, but that clarify the fact that the endorsement only applies if the terrorism event is not "certified" and therefore, not subject to the federal Act.
Further Information
For additional information on TRIA, including clarification of the law and its effect on coverage, please contact the United States Treasury Department or visit their TRIA website at: