Christian DeLozier, CIC, Mike Keith Insurance, MAIA Coverage Advisory Committee
From the Missouri Association of Insurance Agents’ Missouri Agent, May/Jun 2020

After 18 successful years of protection under the Terrorism Risk Insurance Act of 2002 (and its
subsequent reauthorizations), it’s a great time to reaffirm your understanding of the act and how it will
affect your clients. TRIA, known today as TRIPRA (Terrorism Risk Insurance Program Reauthorization Act
of 2019), was established Nov. 26, 2002, after the inconceivable terrorist attacks on the World Trade
Center buildings on Sept. 11, 2001. Since that fateful date, the U.S. government has successfully
thwarted any subsequent “certified” terrorist attacks. As you read on, let’s take a closer look at the
circumstances that must occur to certify an act of terrorism and how the federal government will share
in future insured losses with private insurers.

Prior to the 9/11 attacks, terrorism wasn’t an exclusion or a topic of discussion for most of the industry.
Post‐9/11, the industry panicked as carriers began drafting exclusions, thereby eliminating their
exposure to future attacks. Once coverage was available it was mostly cost prohibitive. Now, as we
approach two decades post‐9/11, the cost to include terrorism is negligible for most located in low risk
cities and/or facilities.

Before we jump into how an act is certified and when the federal backstop will be triggered, let’s review
briefly the purpose of the government’s intervention. The government quickly realized after 9/11 that it
was economically necessary to create a federal backstop that would allow private insurers to take on
the primary risk with the understanding that catastrophic events would receive federal protection.
Without TRIA/TRIPRA, private insurance carriers would likely be forced to exclude coverage entirely or
price coverage so high it would be unattainable for most. Both options would likely keep a weakened
economy post‐9/11 more vulnerable to further economic decline with fewer investors, developers and
lending institutions willing to consider what once was calculable risk in a post‐9/11 world. TRIA was
intended to be a temporary backstop until the economy could rebound and the insurance industry could
evaluate and calculate the risk of terrorism and price it accordingly. While I’m quite certain no one
would consider 25 years (2002 – 2027) temporary, the stabilizing effects of TRIA have aided in the
country’s recovery.

Now that we understand why TRIPRA is so important, let’s take a look at how it works today. For a
complete history, a great resource is “Terrorism Risk Insurance: Overview and Issue Analysis for the
116th Congress.”

To become a “certified act of terrorism” the act must:

a. Be certified by the Secretary of the Treasury, the Secretary of Homeland Security,
and the Attorney General of the United States.

b. Be a violent act dangerous to:

i. Human life;
ii. Property; or
iii. Infrastructure;

c. Have resulted in damage within the United States, or outside the United States in
the case of an air carrier, vessel or the premises of a United States mission.

d. Have been committed by an individual or individuals 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.

e. Incur property and casualty (exclusively bodily injury, property damage, and
workers’ compensation) “insured losses” in excess of $5 million in the aggregate.

Once its has been declared a “certified act of terrorism,” the program requires total insurance industry
losses to exceed defined limits before compensation will be paid. Beginning in 2020, that amount is
$200 million. This program trigger should not be confused with the $5 million of insured losses required
to certify an act of terrorism.

After the $200 million program trigger has been met, the insured losses will be subject to the insurer’s
deductible, which, beginning in 2007 and for all subsequent years, is 20 percent of earned premium for
TRIA‐eligible lines of business. Once that deductible has been met, insurers will be responsible for 20
percent of losses, with the government covering the remaining 80 percent.

The federal government is required to recoup their payments to insurers if the total insured losses are
less than the sum of all insurer deductibles for the prior three years. In this situation, the Secretary of
the Treasury will recoup 140 percent of the difference between the insurer deductible, plus their 20
percent coinsurance, minus the aggregate insurer retention. The program states the Secretary has the
discretion to either accept the liability for insured losses in excess of the aggregate insurer retention, or
to implement a discretionary recoupment to be determined at that time.

The $100 billion cap on liability for the program and all insurers has remained unchanged since 2002.
Once aggregate payments of all insured losses reach $100 billion, the program and insurers’ liability
ends.

The 2019 reauthorization extended TRIPRA to 2027. Beyond the extension to 2027, there is nothing
significant in this reauthorization to report. The Comptroller General is to conduct a feasibility study on
cyberterrorism, which isn’t specifically excluded under TRIPRA.
In summary, once an act has been declared a “certified an act of terrorism,” your primary insurer will
start paying claims until they meet their deductible, which is 20 percent of their total earned premium.
Once the total insured losses reach $200 million, TRIPRA will start paying insured losses. TRIPRA and the
insurer will share in the cost in excess of the insurer deductible on an 80/20 share. If the total insured
losses are less than the aggregate insurer(s) retention, the program will recoup their payments at 140
percent. If insured losses are greater than the aggregate insurer retention, the program could
implement an additional discretionary recoupment amount/percentage.

Let us provide you with the coverage you need.