Terrorism Risk Insurance Act Case Study

Terrorism Risk Insurance Act (TRIA) was first enacted on November 26, 2002, after the September 11, 2001, terrorist attacks in the United States created a severe market shortage for terrorism insurance. In this paper, the author will be answering the question based on if TRIA should be extended forever or not; in alignment with the instructor’s expectation to this assignment.
TRIA was passed in November 26, 2002 by the then president George Bush when insurers in several states decided to stop providing coverage for businesses against terrorism after suffering from the most costly disaster in the history of insurance in 2001. The program was first designed for a period of three years then was later extended for two years, (Terrorism Risk Insurance

The act mandates insurers to offer terrorism risk insurance to all their clients, and to benefit free up-front reinsurance from the federal government above an industry threshold of $25 billion and up to $100 billion (“Should the U.S. Backstop Private Terrorism Risk Insurance- Forever?” 2013). However there are debates on to weather the act should be extended for a period of time or forever. A lot of people in insurance and terrorism insurance markets seems to welcome an extension, they believe that without TRIA, the market for terrorism insurance would be of nonexistent. They are worried about the uncertainty of covering of potential future terror attacks. On the other hand, some believe the private insurance marketplace is capable to take full charge of terrorism coverage and that a federal backstop is not necessary (Brian J. Green, 2014).

These business sectors might be unable to obtain financing after an attack without terrorism coverage which would disrupt these industries. This partnership has made private insurance market to participate in a meaningful way to the economy. It is certain that so far TRIA has worked well and also provided certainty for the economy; terrorism coverage is now also widely available for businesses purchasing the coverage. It is also important to note that the take-up rate for the coverage has raised from the 27 percent in its first year to 62 percent which makes it clear that it growth seems high in the marketplace and for this it should be extended forever (“ Why TRIA must be extended” 2013). America and the rest of the world still remains vulnerable, security might have increased since the attack 2001 but the risk of terrorist attacks for cities that could cost more than that of 2001 which cost thirty billion dollars plus. Even with experience of providing terrorism coverage, private insurance industry might not be able to bear the full potential impact of large scale attack on its own if it happens. Hence, making TRIA permanent is really good way prepare for unpredictable future