IDEAS home Printed from https://ideas.repec.org/p/rff/dpaper/dp-17-06.html
   My bibliography  Save this paper

A Successful (Yet Somewhat Untested) Case of Disaster Financing: Terrorism Insurance under TRIA, 2002–2020

Author

Listed:
  • Michel-Kerjan, Erwann

    (Center for Risk Management and Decision Processes, The Wharton School, University of Pennsylvania)

  • Kunreuther, Howard

    (Center for Risk Management and Decision Processes, The Wharton School, University of Pennsylvania)

Abstract

The Terrorism Risk Insurance Act (TRIA), passed at the end of 2002, established a public-private partnership between the US federal government, private insurers, and all commercial enterprises operating on US soil. Renewed and modified by the US Congress and the president in January 2015 until December 2020, the TRIA program requires insurers to offer terrorism insurance to their commercial policyholders while providing insurers with free up-front financial protection up to $100 billion against terrorist attacks in the United States. With the federal government providing a financial safety net, the private insurance sector can offer coverage against an uncertain risk that would otherwise be largely considered uninsurable, thus making terrorism insurance widely available and affordable. Overall premiums have been at about 2 to 6 percent of property premiums over the past four years, with the most significant increase recently for financial institutions (from 4 percent in 2012 to 9 percent in 2015). A significant portion of insurance policies, 23 percent according to a recent study by the US Treasury, which are typically those covering smaller firms, include terrorism coverage at no disclosed additional cost. TRIA is a successful case of public-private disaster risk financing that has received bipartisan political support. Yet it remains untested for large losses and it is unclear how the market and policymakers will react should another large-scale insured loss occur. TRIA also raises concerns about the indemnification of individual victims of a terrorist attack (in addition to workers’ compensation).

Suggested Citation

  • Michel-Kerjan, Erwann & Kunreuther, Howard, 2017. "A Successful (Yet Somewhat Untested) Case of Disaster Financing: Terrorism Insurance under TRIA, 2002–2020," RFF Working Paper Series dp-17-06, Resources for the Future.
  • Handle: RePEc:rff:dpaper:dp-17-06
    as

    Download full text from publisher

    File URL: http://www.rff.org/RFF/documents/RFF-DP-17-06.pdf
    Download Restriction: no
    ---><---

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:rff:dpaper:dp-17-06. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Resources for the Future (email available below). General contact details of provider: https://edirc.repec.org/data/rffffus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.