In 2002, President George W. Bush signed the Terrorism Risk Insurance Act (TRIA) of 2003 into law. TRIA created a federal program, administered by the Treasury Department, which facilitates a system of compensation for insured losses which result from an act of terrorism.
The law has been extended several times and it is now scheduled to sunset on December 31, 2014.
Essentially, In essence, what this law does is provide reinsurance coverage to insurance companies in the event of any event which is declared terrorism.
Prior to the attacks on 9/11, commercial insurers did not exclude acts of terrorism, nor did they charge for them but the estimated $40 billion loss triggered the realization that there was a need for such coverage.
The losses from those attacks were largely borne by reinsurers who were hit so hard that they left the terrorism market. Once there was no available reinsurance, primary insurers began excluding terrorism incidents, causing a vacuum in the industry, which Congress fixed by enacting TRIA.
The definition of an “act of terrorism,” for purposes of terrorism risk insurance, is “any act certified by the Secretary of Treasury…to be an act that is dangerous to human life, property, or infrastructure and to have resulted in damage within the U.S…committed by an individual or individuals, as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the United States Government by coercion.”
Acts committed as part of the course of a war are not covered, nor are various specific types of attacks, such as nuclear or biological.
Terrorism insurance covers numerous lines of insurance, including business property, loss of rents, and directors and officers liability.