Lanterna Rally

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Published: 2005

Total Pages: 89

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The Terrorism Risk Insurance Act of 2002 (TRIA) was crafted in the aftermath of the 9/11 attacks after the insurance industry, stung by $32 billion in damage claims (by current estimates) and fearing another attack of equal magnitude, began to exclude terrorism coverage from policies. The legislation requires insurance companies to make terrorism insurance available to customers and, in return, provides federal reinsurance (a "backstop") for losses from terrorist attacks. It is intended to give insurers time to assess their exposure to terrorism risk and to consider how to price and underwrite the risk. TRIA is set to expire at the end of December 2005. TRIA embodies federal policy that a private insurance market will provide the foundation of the financial recovery from future terrorist attacks. It also recognizes that since the risk is unfamiliar to the industry, federal government assistance should, at least in the short run, be made available to support this market. In this book, we examine whether this policy and, in particular, the architecture of TRIA provide robust protection against the threat of losses from future attacks. By robust, we ask specifically whether the structure of TRIA is in line with the fundamental qualities of the risk of terrorism and with likely evolving trends in this threat. The focus of the analysis is on developments that have relevance for terrorist attacks taking place within the borders of the continental United States and the extent to which they are addressed (or not) by the TRIA framework.