Policy Documents

Let the Terrorism Risk Insurance Act (TRIA) Expire

David John –
December 11, 2007

The Senate's Terrorism Risk Insurance Program Reauthorization Act of 2007 (S. 2285) would extend the Terrorism Risk Insurance Act (TRIA), a program that should be allowed to expire. The bill passed on November 16, but rather than go to conference committee to reconcile differences between the House and Senate approaches, the Senate has been holding firmly onto its version, prompting the House to consider an alternate version that accepts some of the Senate's provisions. Though an improvement over the original House version, the second House bill retains many features that would make TRIA an even worse program than it is today. The best policy decision would still be to end TRIA when it expires at the end of December.

A Temporary Program

TRIA provides federal reinsurance to insurance companies for property insurance policies that cover potential damage caused by terrorist attacks.It served an important function soon after the attacks of September 11, 2001, but it is time for the private sector to completely take over terrorism insurance coverage. The program was meant to act as a stopgap to shore up the country's terrorism insurance market while insurance providers worked out how to develop affordable terrorism insurance in the wake of the attacks. At the time, it was logical to stabilize the insurance market through a short-term government reinsurance program. As a result, the Terrorism Risk Insurance Act, a temporary measure, was passed and signed by President Bush on November 26, 2002, and did indeed provide stabilization during a time of great unease.

However, TRIA was not intended to be a permanent program. As the original bill stated, TRIA would "provide temporary financial compensation to insured parties, contributing to the stabilization of the United States economy in a time of national crisis, while the financial services industry develops the systems, mechanisms, products, and programs necessary to create a viable financial services market for private terrorism risk insurance." Returning this coverage to the private sector is an important goal, because there is no reason why taxpayers should continue to have the ultimate financial responsibility for paying insurance losses on private property. The insurance crisis has passed, and the insurance industry now has enough information about terrorist attacks to again provide this coverage. As a result, there is no reason to extend TRIA beyond its scheduled December 31, 2007 expiration date.