Why Am I Paying for Terrorism Coverage?

The former is a terrorist act that is eligible for coverage under the TerrorismvRisk Insurance Act (TRIA). To trigger the coverage under TRIA (which provides backstop for terrorism insurance) the U.S. Government must certify it as an “act of terrorism.” Insurers paying claims in response to Certified acts of terrorism qualify for federal reimbursement – but ultimately much of the cost of the program is born by the insurance industry. The cost of TRIA to the nation’s taxpayers is effectively zero, according to experts.

For an event to be certified as a terrorist attack: “The attack must

(1) be violent or dangerous to human life, property or infrastructure;
(2) cause damage in the United States or to U.S. property;
(3) be an effort to coerce U.S. civilians or the U.S. government; and
(4) cause expected minimum losses of at least $5 million, and the total aggregate annual terrorism losses in one year must be greater than $180 million.

After these industry-wide thresholds are met, each individual insurer is responsible for a deductible equal to 24 percent of its premiums on TRIA-eligible lines of insurance. The Treasury would then reimburse the insurers 81 percent of their losses from the terrorist attack.

Only claims occurring in certain property/casualty commercial lines of insurance are included in the calculations of insured losses under TRIA (auto and homeowners insurance, life insurance and health insurance have always been excluded), and the number of lines has narrowed since the law was passed.

Thanks to TRIA, underwriters have become much more willing to provider reasonably priced coverage. Insureds should take advantage of it because the risk of harm due to a terrorist attack, especially to a large property or business establishment is considerable. Industries responsible for much of the country’s critical infrastructure such as power and utilities, telecommunications and health care, along with financial institutions and local government have take-up rates that approach or exceed 70 percent.

TRIA almost was allowed to expire in 2015. Had that happened, the cost of terrorism insurance would have skyrocketed, and the availability would have decreased by more than half.

Insureds and Insurance agents should learn the in’s and out’s of TRIA.

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