If you own a business, chances are you have heard of the Terrorism Risk Insurance Act (“TRIA”). At each renewal, your insurance broker may require you to sign a form rejecting or accepting TRIA coverage (for an additional premium), or it may be automatically included in your program. Have you ever taken the time to understand the coverage or how it will apply though?
TRIA was signed into law by President George W. Bush on November 26, 2002 in response to the catastrophic terrorist acts on September 11th, 2001. The program has since been extended and reauthorized several times with a new expiration of December 31, 2027.
As it states on the U.S. Department of the Treasury website, “The Terrorism Risk Insurance Act (TRIA) created a temporary federal program that provides for a transplant system of shared public and private compensation for certain insured losses resulting from a certified act of terrorism. The Secretary of the Treasury administers the program with the assistance of the Federal Insurance Office.”
So what does that mean for you as an insured?
Well, for the Act to be triggered, certain criteria must be met:
1. The act of Terrorism must be certified by the Secretary of the Treasury in consultation with the Secretary of Homeland Security and the Attorney General of the United States. Insured losses must exceed $5,000,000 in the United States to be certified.
- To be considered an act of terrorism, the act must be a violent act or an act that is dangerous to human life, property, or infrastructure; to have resulted in damage within the United States, or outside the United States in the case of an air carrier or vessel or the premises of a United States mission; and to 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.
- To put this in perspective, there has not been a certified act of Terrorism declared by the Secretary of the Treasury since TRIA was enacted.
2. In order for the Federal Government to provide assistance to insurers under this program, two things must occur:
- The aggregate industry losses from the act of terrorism must exceed $200,000,000. If the aggregate industry losses are under $200,000,000, there is no federal assistance.
- Each respective insurer must meet their individual insurer deductible in a program year which is equal to 20% of that insurer’s previous year’s premiums contemplated under TRIA. TRIA contemplated coverages include commercial property, commercial casualty (most liability policies), workers’ compensation, and surety.
3. After the $200,000,000 aggregate industry threshold is exceeded and an insurer meets their respective deductible, the Federal government will share in 80% of that insurer’s losses for a certified act of terrorism subject to a Federal Cap of $100 Billion in industry losses. After $100 Billion in losses, there is no guarantee of federal relief or that insurers provide coverage.
- To put this into perspective, losses from the September 11th terrorist attacks totaled more than $45 Billion in losses.
How will the different coverages respond to a certified terrorist event?
The policies are still subject to their own terms and conditions. Here are some examples for a few of the coverages:
- Commercial Property—The most common coverage that comes to mind when it comes to terrorism. For example: A landlord owns a large skyscraper in a well-populated city. Terrorists plant explosives in the building and the building collapses. The cost to rebuild as well as the loss of rental income would be addressed by TRIA if deemed a certified act of terrorism.
- Commercial General Liability/Excess Liability: A large building is the target of a terrorist attack. Customers or their families who were injured or killed in the attack file suit against the landlord and tenant for failure to secure the facility to prevent attacks from occurring
- Commercial Auto: Several vehicles in the surrounding area are destroyed as a result of a certified act of terrorism.
- Workers Compensation: Injured or killed employees during the course and scope of employment that sustain a certified act of terrorism.
- Cyber: A cyber terrorist hacks into a large public utility company, resulting in millions of dollars in losses.
Please keep in mind that your policy may still contain exclusions for “nuclear events,” “biological, chemical or radiological events,” or “war” which may limit or exclude coverage depending on the details surrounding the certified act of terrorism.
Is TRIA my only option in the market to insure for possible terrorist events?
No. There are standalone insurance products on the market that may be broader in the scope of coverage than the federally backed TRIA. A standalone terrorism product may provide several coverages including a Crisis Management component—large municipalities might purchase this type of coverage. There is also a standalone product for Violent and Malicious acts—schools and public venues may wish to purchase this coverage to address active shooter events.
So should I Accept or Reject TRIA coverage?
Like most coverage considerations, the costs should be weighed against your relative exposure for each risk. TRIA premiums are typically in the range of 1-2% of the quoted commercial property & casualty premiums so it is generally a nominal premium to add to each coverage. To put this into perspective, approximately 78% of insureds purchased the optional TRIA coverage according to 2017 statistics from the U.S. Department of the Treasury.
Please feel free to reach out for any comments or questions.