Property owners may decide to purchase terrorism insurance to guard against potential financial losses should they be victims of terrorist activity.
Insurance companies in general exclude terrorism from casualty and property insurance. Otherwise they require special endorsements to provide such cover. The predictability of terrorist activity is difficult. Calculating the potential liability is challenging. For example, the September 11, 2001 attacks resulted in an estimated $31.7 billion loss. Due to these factors, setting a feasible premium therefore is a daunting task for any insurance company.
In the immediate aftermath of September 11 attacks, US insurers were faced with huge amounts of terrorism exposure from portfolios that had terrorism cover. The insurers had limited possibilities of obtaining reinsurance to cover the losses should a future attack occur. An example of how premiums skyrocketed after 9/11, Chicago’s O’Hare airport carried $750 million terrorism insurance at an annual premium of $125, 000. After 9/11 insurers offered $150 million cover at an annual premium of $6.9 million.
In October 2001, the Insurance Services Office, acting on behalf of insurance companies, filed a request in every state for permission to exclude terrorism cover from all commercial insurance coverage. By early 2002, 45 states permitted insurance companies to exclude terrorism from all their policies except for Worker’s Compensation insurance. By statute this covers occupational injuries without regard to the peril that caused the injury.
Most insurance companies prefer rather to spread coverage over a wider geographic area. This is the case regarding flood insurance. The World Trade Centre losses were concentrated in one condensed area. Therefore this important factor determines the availability of terrorism insurance cover.
The Geneva Association (also known as the International Association for the Study of Insurance Economics) compiled a report which stated that a mix of government and private resource could provide a short-term solution to deal with terrorism insurance cover. The government would serve two functions:
Establish rules to act on the capacity shortage;
Be the insurer of last resort.
The Terrorism Risk Insurance Program Reauthorization Act of 2007 was signed into law by the President of the United States on 26 December 2007, which extends the Terrorism Risk Insurance Act (TRIA) until 31 December 2014. The law extends the Federal Program. This provides for a system of shared public and private compensation for insured losses caused by acts of terrorism.
During mid-2007, another extension to TRIA was proposed and is known as TRIREA (Terrorism Risk Insurance Revision and Extension Act). TRIREA contained several new provisions including a compulsory made available claim for NCBR coverage (Nuclear, Chemical, Biological and Radiological) and the ending of the distinction between domestic and foreign events.
The full Senate passed S. 2244 in July 2014; The House Financial Services Committee passed H. R. 4871 in June 2014. Each bill would renew TRIA for another seven and 5 years respectively. These bills would modify the current program in different ways.