Terrorism insurance is available under the Terrorism Risk Insurance Program (program) created by the Terrorism Risk Insurance Act of 2002[i]. The program was to last until 2005 in the initial act but then was extended by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (Reauthorization Act) until 2014. The program administers a system of shared public/private compensation for insured losses resulting from acts of terrorism.
The program is administered by the secretary of the treasury department. S/he oversees the program and has the authority to establish regulations and procedures to implement the program. It is intended to protect consumers by ensuring the availability of property and affordable insurance against terrorism risk. It also grants time to the private insurance markets to stabilize after a terrorist attack.
Under this program, participating insurers must pay a deductible before federal assistance is available, when loss occurs due to a terrorism act. Deductibles applicable during specific periods are laid out in the act. The program covers aggregate insured losses up to an annual limit of $100 billion. It requires insurers to notify policy holders of the coverage. It fixes the program trigger at $100 million. The U.S. treasury promulgates regulations for determining pro-rata shares of insured losses under the program when insured losses exceed $100 billion. The Government may recover the amounts paid by imposing a surcharge on all policyholders.
In the initial act of 2002, an act of terrorism had to be committed by a foreign person or a foreign interest. But from 2007, an act of terrorism need not necessarily be committed by a foreign person or foreign interest.
A certification of terrorism act by the treasury department in concurrence with the secretary of state and the attorney general is necessary to consider an act as a terrorism act. An act of terrorism must be a violent act or an act that is dangerous to human life, property or infrastructure, and resultant damage must have occurred within the U.S. Acts outside the U.S. will be subject to the TRIA when they occur in relation to an air carrier or vessel or in the premises of a U.S. mission[ii]. A certification of terrorism act will not be available if the act is committed as part of the course of a war declared by a State. It may also not be available if the aggregate loss resulting from the act does not exceed a specified amount. A decision certifying an act as a terrorism act or not is final and not subject to judicial review.
The secretary of the treasury has the power to investigate and audit all claims under the program. S/he has to ensure that all insurers and self-insured entities covered in the program are treated comparably under the program.
The Reauthorization Act requires the president’s working group on financial markets to conduct a study on the long-term availability and affordability of terrorism risk insurance. In order to sustain a practical private market for terrorism insurance, federal support is necessary.
The National Association of Insurance Commissioners and state insurance commissioners play an essential role in administering the program. It is done by issuing timely guidance to insurers after consulting with the treasury department and its program offices.
[i] 107 P.L. 297 sec.103.
[ii] 107 P.L. 297 sec.102 (1).
