Last Updated: 10/25/2023

Issue: Prior to the Sept. 11, 2001, attacks on the World Trade Center and the Pentagon, terrorism coverage was usually included in general insurance policies without an additional cost to insureds. After the attacks, coverage became prohibitively expensive, if offered at all. In response, the U.S. Congress (Congress) passed the Terrorism Risk Insurance Act (TRIA) in 2002.   

TRIA was initially created as a temporary three-year federal program, allowing the federal government to share monetary losses with insurers on commercial property/casualty (P/C) losses due to a terrorist attack. Since then, it has been renewed four times: 2005, 2007, 2015, and 2019. The current reauthorization is slated to expire Dec. 31, 2027. TRIA requires insurers to make terrorism coverage available to commercial policyholders, but it does not require insureds to purchase it.  
  

Background: Despite the terrorist attacks on the World Trade Center in 1993 and the Oklahoma City bombing in 1995, insurers did not view domestic or international terrorism as a risk that should be considered when underwriting commercial insurance policies because:  

• Historic losses from terrorism were relatively small, and there was little data available to estimate future losses. 

• Acts of terrorism are intentional acts designed to maximize damages and are not accidental insurable risks. 

• Attacks are geographically concentrated in one area, making it difficult to spread the risk and increasing the chance of insurance company bankruptcies.   

As such, terrorism coverage was an unnamed peril that was covered in most standard all-risk commercial and homeowners policies before the Sept. 11, 2001, attack.   

The Insurance Information Institute (III) estimates that the 9/11 attacks cost the insurance industry $47 billion (in 2019 dollars) in losses, making it the most expensive terrorist incident in U.S. history, as well as one of the largest single insured loss events in history. Reinsurers covered about two-thirds of the losses. A breakdown of the losses by specifics includes 33% for business interruption, while 30% included property losses, including the World Trade Center towers. Workers’ compensation, life, health, airline liability, and general liability insurance lines also paid out billions of dollars in claims.  

After the massive financial losses from the 9/11 attack, reinsurers severely cut back on their terrorism coverage or stopped offering it altogether, putting a strain on U.S. insurers’ ability to cover the risk. As a result, the companies that continued to offer terrorism coverage charged exorbitant premiums, making terrorism insurance unaffordable and unattainable for many.   

Fearing future terrorism losses were unsustainable and uncertain of the large-scale risk, insurers defined terrorism as an uninsurable risk. In October 2001, the Insurance Services Office (ISO) asked all U.S. states for permission to exclude terrorism from all commercial insurance coverage. Ultimately, 45 states; Washington, DC; Guam; and Puerto Rico approved the new policy language, with the stipulation that workers’ compensation insurance be excluded from the provision. Some terrorism coverage remained available in California, Florida, Georgia, New York, and Texas, as these states did not approve the changes to commercial policies. As a result of the terrorism exclusion, very few companies had protection against a terrorist attack a year after the 9/11 attacks.  

Shortly thereafter, various industry groups called for federal intervention. The Terrorism Risk Insurance Act of 2002 was passed by Congress on Nov. 26, 2002, and signed into law by President George W. Bush.  

The 2019 Reauthorization of TRIA 

On Dec. 20, 2019, President Donald Trump signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2019 (P. L. 116-94), which extended the Terrorism Risk Insurance Program (TRIP) for seven years through Dec. 31, 2027. The 2019 reauthorization: 

• Requires the Secretary of the Treasury to include in its biennial report to Congress an evaluation of the availability and affordability of terrorism risk insurance, including specifically for places of worship. 

• Requires the U.S. Government Accountability Office (GAO) to conduct a study on cyberterrorism risks, including an analysis of whether the states’ definition of cyber liability under a P/C line of insurance is adequate coverage for an act of cyber terrorism, the potential costs of cyberattacks, the private market’s ability to adequately price cyber risks, and whether the TRIA structure is appropriate for covering cyberterrorism. 

• Adjusts the mandatory recoupment timing. 

• Eliminates outdated language regarding past U.S. government reimbursement levels. The reimbursement level of covered terrorism losses exceeding the statutorily established deducible is now a fixed 80% as of Jan. 1, 2020.  

Current NAIC Activity 

In the absence of private market innovations and solutions, sustaining a viable private market for terrorism insurance depends on a federal backstop. The NAIC and state insurance commissioners play an essential role in administering TRIP, issuing timely guidance to insurers, and consulting with the Federal Insurance Office (FIO) and its TRIP Office. 

The NAIC is committed to working with Congress, the administration, state officials, and the industry to develop a long-term plan to make terrorism insurance available and affordable.   

The NAIC has played an active role in fostering the program and assisting insurers and the federal government as the program is implemented. The NAIC and its members have also testified before both houses of Congress on the need to extend the program. 

The NAIC Property and Casualty Insurance (C) Committee and its Terrorism Insurance Implementation (C) Working Group recently adopted a model bulletin. The model bulletin provides guidance to insurers regarding rate filings and policy language that state insurance regulators would find acceptable to protect U.S. businesses from acts of terrorism. The model bulletin describes important changes that are contained in TRIA and informs insurers regarding whether rate and policy form filings might be needed. 

The Working Group adopted the Model Disclosure Form. Insurers may use the form as drafted, modify the forms to meet individual circumstances, or use forms that are substantially similar. The U.S. Department of the Treasury (Treasury Department) worked with the Committee and the Working Group to assure that the disclosures satisfy the revised disclosure requirements in TRIA. 

State insurance regulators began collecting data related to terrorism risk insurance in 2016. Additional information on that data collection process can be found on the NAIC website. 

The Treasury Department website provides updated information on TRIP, including announcements of all rulemakings, interpretive guidance, and requests for public comments.