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The Future of the Terrorism Risk Insurance Act

by Lloyd Dixon, Michael Dworsky, Brian Michael Jenkins, Tom LaTourrette, Henry H. Willis

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Research Questions

  1. What are the potential implications of the upcoming expiration of the Terrorism Risk Insurance Act (TRIA)?
  2. What is the state of the current and possible future terrorist threat?
  3. What are the pros and cons of proposals to extend or modify TRIA?

Since the Terrorism Risk Insurance Act (TRIA) was last reauthorized in 2007, terrorism insurance has remained widely available and the price has fallen. However, challenges remain from both a social and an insurance point of view. Roughly 40 percent of policyholders still do not purchase terrorism coverage, and uncertainty remains regarding how much coverage would be available without TRIA. What is more, the program is set to expire on December 31, 2014, and it is unclear whether the improvements in the market since TRIA was first passed in 2002 can be sustained without it.

On June 10, 2014, a conference was convened in Washington, D.C., to present findings of recent RAND research and to address additional facets of this complex issue, including the pros and cons of proposed modifications to TRIA. This conference brought together stakeholders to not only discuss the varying implications of TRIA's expiration, modification, and extension, but also to frame how it is debated in the halls of Congress and across the country.

Key Findings

The initial objectives of the Terrorism Risk Insurance Act were to

  • ensure that business activity did not materially suffer from a lack of available terrorism insurance
  • provide a transition period for the insurance industry to develop the models and tools that would enable it to more easily price terrorism risk and cover losses after TRIA expired.

Notable features of the Terrorism Risk Insurance Act include

  • commercial insurers must offer property and casualty coverage for terrorism on terms that do not differ materially from those for coverage for other perils
  • domestic terrorism is covered (in addition to terrorist attacks carried out by agents of foreign governments or organizations)
  • attacks using nuclear, biological, chemical, and radiological weapons are not treated separately from attacks using conventional weapons
  • state laws regarding coverage requirements and exclusions are generally not affected by TRIA.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Morning Session: Discussion of the RAND Policy Briefs

  • Chapter Three

    Invited Comments on the Status of the Terrorism Threat

  • Chapter Four

    First Panel Discussion: Pros and Cons of Various Modifications to TRIA

  • Chapter Five

    Second Panel Discussion: What is the Endgame for TRIA?

  • Appendix

    Conference Agenda

The research described in this report was conducted within the Center for Catastrophic Risk Management and Compensation. The center is part of RAND Justice, Infrastructure, and Environment, a division of the RAND Corporation.

This report is part of the RAND Corporation conference proceeding series. RAND conference proceedings present a collection of papers delivered at a conference or a summary of the conference.

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