Terrorism Risk Insurance

Question 1

why TRIA was needed

Answer 1

after 9/11, reinsurers then primary insurers withdrew from the market, so terrorism risk insurance became unavailable or extremely expensive

Question 2

goals of original TRIA legislation (3)

Answer 2

• temporary federal program of sharing terrorism losses to allow the private market to stabilize
• protect consumers by ensuring availability and affordability of terrorism insurance
• preserve state regulation of insurance

Question 3

high level summary of TRIA

Answer 3

• no federal sharing for a relatively small loss
• government spreads loss over time and over the entire insurance industry for medium-sized loss
• government pays most of losses for a large loss

Question 4

two reporting requirements added under TRIPRA 2019

Answer 4

• Treasury to add availability and affordability of terrorism risk insurance for places of worship to annual report on market conditions
• Comptroller General to report on cyberterrorism

Question 5

loss sharing provisions under TRIA (7)

Answer 5

1) eligibility: single terrorist act must be certified and industry losses must exceed $5M
2) program trigger: aggregate industry losses must exceed $200M
3) lines covered: commercial property and casualty only, including cyber liability, with certain lines excluded
4) deductible for individual insurer: 20% of prior year direct earned premiums for covered lines
5) loss sharing after aggregate loss threshold and deductible: government pays 80%
6) limit: no federal government coverage for loss above $100B
7) recoupment: if aggregate industry losses are under $37.5B, government will recoup 140% of outlays via surcharges; if over $37.5B, government has discretion to apply surcharges for recoupment

Question 6

TRIA consumer protections (5)

Answer 6

• insurers must make terrorism coverage available, but policyholders are not required to purchase
• coverage may not differ materially from coverage for other types of losses
• premium charged for terrorism insurance must be stated
• possible federal share of compensation must be stated
• amount charged by insurers is not limited, but is subject to regulatory approval

Question 7

coverage for nuclear, biological, chemical, and radiological (NCBR) events

Answer 7

TRIA does not not specifically include or exclude, but most underlying policies (except workers comp) do exclude

Question 8

four ideal elements of insurable risk

Answer 8

• large enough number of insureds to make losses reasonably predictable (terrorism risk fails)
• losses must be definite and measurable
• losses must be fortuitous or accidental (terrorism risk fails this)
• losses must not be catastrophic (terrorism meeting this depends on insurer’s underwriting actions)

Question 9

examples of international responses to terrorism risk (4)

Answer 9

• Spain uses government-owned reinsurance
• U.K. created Pool Re, a privately owned mutual insurance company with government backing
• Canada considered and rejected a government program after 9/11
• Germany created a private insurer with government backing