TRIA

Question 1

2 reasons for government involvement in terrorism insurance

Answer 1

1. Fill an unmet need (insurers withdrawing after 9/11)
2. Social Purpose (lessen economic disruption from lack of terrorism insurance availability)

Question 2

3 Goals of TRIA

Answer 2

SPP
1. STABILIZE private market by providing temporary public/private terrorism insurance
- TRIA created a government-backed loss-sharing mechanism
- Unsure if the need is met because it hasn’t been tested by a certified event yet
2. PROTECT consumers by ensuring AA (Availability & Affordability)
- TRIA requires insurers to offer commercial coverage
- But insureds are not required to purchase
- Insurers must provide transparency (disclose terrorism premium separately)
- Terrorism premium requires regulatory approval
- Increases availability and affordability
3. PRESERVE state regulation of insurance
- This is explicitly written into TRIA; states regulate rates
- But with certain exceptions like: the state cannot enact its own definition of terrorism

Question 3

7 Terrorism Loss Sharing Criteria

Answer 3

CTC-DCLS

1. Certification
   
   • Terrorist act must be certified
   • Certification is done by Secretary of the Treasury (SOT), in consultation with the Secretary of Homeland Security (SOHS) and Attorney General (AG)
   • Losses must be >= $5m in U.S.
2. Federal Government Threshold
   
   • Aggregate insurance losses >= $200m for federal assistance to begin
3. Coverage
   
   • Only commercial P&C
4. Deductibles
   
   • Insurer’s deductible = 20% of direct earned premium
5. Coinsurance
   
   • Insurer pays 20% of losses above deductible
6. Federal government limit
   
   • No federal coverage for aggregate losses >= $100 billion
   • Insurers are not required to provide coverage beyond this limit
7. Surcharges
   
   • SOT must establish surcharges to recoup 140% of federal outlay when aggregate losses are <= $37.5 billion
   • For aggregate losses > $37 .5 billion, SOT may establish surcharges but not mandatory

Question 4

Coverage for nonconventional terrorism attacks

Answer 4

• Are NBCR (Nuclear/Biological/Chemical/Radiological) events covered by TRIA
  
  • Not explicitly included or excluded, so should be covered by TRIA
  • But most primary policies covered by TRIA have exclusions for NBCR
  • Note that NBCR coverage has never been legally tested
• Are cyber-terrorism events covered by TRIA
  
  • Yes, but only 50% of standalone cyber insurance policies included terrorism

Question 5

Insurability of Terrorism

Answer 5

NOT INSURABLE

• 4 elements of an insurable risk (C-MAC)
  
  1. Credible (large number of customers and events make losses predictable)
     i. FAIL - applies only to commercial insurance, coverage is not mandatory, number or events is too low
  2. Measurable
     i. PASS - a terrorism event is certified and can be measured in dollars
  3. Accidental
     i. FAIL - terrorism attacks are planned
  4. Catastrophic
     i. DEPENDS - insurer can control their concentration of risk through underwriting