TRIA: Terrorism Risk Insurance Act and Its Impact
How the Terrorism Risk Insurance Act provides a federal backstop for terrorism risk in insurance.
Background and Structure
The Terrorism Risk Insurance Act (TRIA) was enacted in 2002 following the September 11 attacks, which caused over $40 billion in insured losses and led many insurers to exclude terrorism coverage. TRIA created a federal backstop that shares terrorism losses between the insurance industry and the federal government. Insurers must offer terrorism coverage and retain a deductible based on a percentage of their direct earned premium. Above the deductible, the government covers a specified share of losses, with the remainder retained by the insurer.
Market Impact
TRIA has stabilized the terrorism insurance market by making coverage available and affordable. Without the backstop, many commercial property and casualty policies would exclude terrorism, leaving businesses unable to obtain financing for large real estate and infrastructure projects. The program has been reauthorized multiple times, most recently through 2027. Actuarial pricing of terrorism risk remains challenging because terrorism events are intentional rather than random, making traditional frequency-severity modeling less applicable. Catastrophe modelers use scenario-based approaches instead.