What Is TRIA in Insurance and How Does It Work?

The Terrorism Risk Insurance Act (TRIA) is a federal program established to provide a financial backstop for certain insurance claims that arise from certified acts of terrorism. This program represents a partnership between the federal government and private insurers to manage the financial impact of catastrophic terrorism events. Its creation followed significant market disruptions experienced by the insurance industry in the aftermath of the September 11, 2001, terrorist attacks. The Act aims to ensure the continued availability of terrorism risk insurance for businesses across the United States.

Understanding TRIA’s Foundation

The Terrorism Risk Insurance Act was enacted in November 2002, as a direct response to market instability following the September 11 attacks. Before these events, terrorism coverage was generally included in commercial policies without a separate charge, as large-scale property damage risk was considered minimal. The attacks, however, resulted in insured losses exceeding an estimated $50 billion, leading insurers and reinsurers to reassess their exposure.

After 9/11, many insurers began to exclude terrorism coverage or offered it at prohibitively high costs. This withdrawal threatened to destabilize various U.S. economic sectors, as the absence of terrorism insurance could impede lending and development. Congress passed TRIA to mitigate this market failure, creating a temporary federal program designed to share financial losses from future terrorist attacks with the insurance industry.

TRIA’s core objective has always been to stabilize the market for terrorism risk insurance, fostering its continued availability and affordability. The Act was initially conceived as a temporary, three-year measure to allow the insurance market time to develop its own capacity for underwriting terrorism risk. Despite this initial intent, the program has been reauthorized multiple times, with the latest extension in 2019 prolonging its duration through December 31, 2027.

Identifying Covered Insurance and Events

TRIA’s scope targets commercial lines of property and casualty insurance, ensuring coverage against certified acts of terrorism. The Act applies to commercial property and casualty insurance, including:
Commercial multiple peril policies
Workers’ compensation
Fire insurance
Allied lines
Ocean marine
Inland marine
Products liability
Aircraft (all perils)
Boiler and machinery insurance
Directors and officers liability insurance

Conversely, TRIA excludes several types of insurance from its purview. Personal lines, such as homeowners and personal auto policies, are not covered. Life, health, and medical malpractice insurance are also outside the program’s scope. Other exclusions include:
Federal crop insurance
Private mortgage insurance
Title insurance
Financial guaranty insurance
Federal flood insurance
Reinsurance
Retrocessional reinsurance
Most professional liability insurance (excluding directors and officers liability)

A key aspect of TRIA is the definition and certification of an “act of terrorism.” For an event to trigger the federal backstop, it must be officially certified by the Secretary of the Treasury. This certification occurs in consultation with the Attorney General and the Secretary of Homeland Security. The criteria require the act to be violent or dangerous to human life, property, or infrastructure, and to result in damage within the United States or to U.S. air carriers, vessels, or missions abroad.

The act must be committed to coerce the U.S. civilian population or influence U.S. government policy or conduct. A financial threshold must also be met: aggregate property and casualty insurance losses from the act must exceed $5 million. Acts committed during a declared war are generally excluded from certification, though an exception exists for workers’ compensation claims.

How the Federal Backstop Functions

The operational mechanics of TRIA involve a layered approach to loss sharing, primarily activated once a certified act of terrorism occurs. Before any federal assistance is provided, insurers must satisfy an “insurer deductible,” which is essentially their self-retained portion of the losses. This deductible is calculated as 20% of an insurer’s annual direct earned premiums for the commercial property and casualty lines covered under TRIA. This structure ensures that private insurers bear a significant initial share of the financial burden.

Beyond the individual insurer deductible, a “program trigger” must be met at an industry-wide level. For losses occurring in 2020 and subsequent years, the aggregate insured losses from a certified act of terrorism must exceed $200 million before federal involvement begins. If this industry-wide threshold is not met, no federal funding is disbursed, even if individual insurers have surpassed their deductibles. This mechanism establishes a substantial collective retention for the insurance industry.

Once both the insurer deductible and the program trigger thresholds are crossed, the federal backstop becomes active. The federal government contributes an 80% share of insured losses that exceed the insurer’s deductible. This federal share decreased incrementally over the years, reaching 80% by 2020.

The total financial exposure under TRIA is subject to an “aggregate program cap” of $100 billion per year. If aggregate losses from a certified act of terrorism reach this amount, federal government coverage ceases, and insurers are no longer required to provide coverage for losses beyond this cap. Following any federal payments, TRIA includes recoupment provisions, allowing the government to recover some or all of its outlays. The Secretary of the Treasury may impose surcharges on TRIA-eligible commercial property and casualty insurance policies to facilitate this recoupment, with these surcharges generally limited to 3% of annual premiums.