Terrorism Risk Insurance

Terrorism Risk Insurance


On November 26, 2002, President George W. Bush signed into law the Terrorism Risk Insurance Act. Intended to cover the private sector in the event of terrorist attacks such as those that occurred on September 11 of the preceding year, the Act provided a system of shared public and private compensation for insured losses resulting from acts of terrorism. The insurance industry was divided in its response to the new legislation, and the high cost of coverage kept away many potential policyholders in the nation's major cities.

On signing the Act, Bush, surrounded by construction workers, announced that "Today we're taking action to strengthen America's economy, to build confidence with America's investors, and to create jobs for America's workers." In recent months, he said, a lack of terrorism insurance had resulted in the delay or cancellation of more than $15 billion in real estate sales.

The new legislation would speed economic recovery in the event of a terrorist attack by providing insurance against such incidents. Not only had such coverage been far from explicitly delineated in many traditional policies, but if a single insurer had to compensate even a fraction of the losses result from an event such as September 11, it could bankrupt the company.

The new law would put in place a temporary federal program to establish such insurance, and rescinded all exclusions to terrorism coverage in existing policy. By backing the new insurance with federal funds, it would also afford the insurance industry an opportunity to stabilize in the new market conditions created by the terrorist attacks. After taking effect on the day it was signed, the law would expire automatically in three years.

The insurance industry was divided in its response, a situation captured by headlines that appeared in two different industry journals over the space of a little more than a week: "TRIA Already Is a Success" ( Business Insurance, February 24, 2003) and "One-Size-Fits-All TRIA Doesn't Fit" ( National Underwriter, March 3). The first article, despite its positive spin on the new program, noted that "risk manager response hasn't exactly been over-whelming." One of the problems, noted an industry expert quoted in the second article, was that the law excluded domestic terrorism. Given the sometimes fine line between foreign and domestic terrorists, this could prove problematic.

A report in the New York Times that appeared the same day as the National Underwriter story noted that corporations in New York City, Washington, D.C., Chicago, and other large cities—areas where terrorist attacks in the future were most likely—had shown little interest in purchasing the new insurance. The reasons were several, including the high cost of premiums, combined with the fact that the federal government would compensate most of the losses in the event of a major terrorist attack.

The article also cited the lack of coverage for an attack by domestic terrorists, a flaw given the fact that prior to September 2001, the worst terrorist attack in American history was perpetrated by Americans—in Oklahoma City on April 19, 1995.



Bumiller, Elisabeth. "Government to Cover Most Costs of Insurance Losses in Terrorism." New York Times (November 27, 2002): A1.

Bush, George W. "Remarks on Signing the Terrorism Risk Insurance Act of 2002." Weekly Compilation of Presidential Documents 38, no. 48 (December 2, 2002): 2096–97.

Hays, Daniel. "One-Size-Fits-All Doesn't Fit: Study." National Underwriter 107, no. 9 (March 3, 2003): 26.

Romano, Jay. "Terrorism Insurance, at a Price." New York Times (March 9, 2003): 5.

Treaster, Joseph B. "Insurance for Terrorism Still a Rarity." New York Times (March 8, 2003): C1.

"TRIA Already Is a Success." Business Insurance 37, no. 8 (February 24, 2003): 8.


Terrorism Risk Insurance Program. U.S. Department of the Treasury. < http://www.ustreas.gov/offices/domestic-finance/financial-institution/te rorism-insurance/ > (March 28, 2003).


September 11 Terrorist Attacks on the United States
Terrorism, Intelligence Based Threat and Risk Assessments
Treasury Department, United States

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