The Case for a Permanent 

Federal Terrorism Insurance Plan

The Real Estate Roundtable

Washington, DC

www.rer.org

Terrorism Risk Insurance Act (TRIA) Advisory Committee on 

Risk-Sharing Mechanisms Meeting 

U.S. Department of the Treasury

March 31, 2017
September 11, 2001

• The scale of loss inflicted by the Sept. 11, 2001 

terrorist attacks shocked the world - causing 

significant loss of life and physical destruction 

• Attacks also resulted in one of the costliest 

insurance events in US history – $40 billion* –

most of which was paid by reinsurers

• Prior to 9/11, terrorism coverage was not 

typically excluded from commercial policies, nor 

was a premium explicitly charged for the risk

– Most insurers did not perceive terrorism loss to pose 

significant risks – even after the 1993 WTC bombing

* Insurance Information Institute 
9/11: Economic Aftermath

• Following the 9/11 attacks, 

– DJIA fell 14.3% - largest 1-week point drop in history

– Reinsurers paid record claims but concluded they 

could not quantify risk; withdrew from terror market 

– Insurance carriers began to exclude terrorism 

coverage from commercial policies

– Lenders require terrorism coverage for funding

– Commercial property owners and businesses could 

not find adequate coverage; CRE lending in jeopardy 

– $15.5 billion construction projects in 17 states stalled*

– Moody’s downgraded $4.5 billion of CMBS

* Survey, The Real Estate Roundtable, September, 2002
TRIA: Bridge to an Uncertain Future

• TRIA enacted in 2002—

– Temporary program designed to ensure that 

adequate resources are available for businesses 

to recover and rebuild if they become the victims 

of a terrorist attack

– TRIA extended in 2005, 2007, sunset in 2014 

before being extended in early 2015.

– The difficulties experienced in each renewal 

creates uncertainty in lending and construction 

markets, which leads to delays, added risk and 

cost
TRIA: Bridge to an Uncertain Future

• TRIA scheduled to sunset on Dec. 31, 2020 

• Policyholders are concerned that the perennial 

threat of renewing this federal program creates 

an unacceptable level of uncertainty and 

potential cost for the economy – for real estate 

owners and investors in particular

• 12 day lapse undermined economic stability

• Some policyholders were forced to turn to standalone coverage to plug the gap, at unattractive 

terms
Mitigating and Managing Risk

• Sixteen years after the 9/11 attacks, 

strengthening the security and resilience of the 

sector remains a top priority and is an important 

aspect of managing any facility where people 

live, work, shop and play 

• Through our Homeland Security Task Force and 

Real Estate Information Sharing and Analysis 

Center www.reisac.org we continue to work with 

government officials and private sector partners 

to prevent, detect and respond to a multiplicity of 

key physical and cyber threats
Preparedness

• Presidential Policy Directive 8 (PPD-8) states 

that our national preparedness is to be based on 

core capabilities that support "strengthening the 

security and resilience of the United States 

through systematic preparation for the threats 

that pose the greatest risk to the security of the 

Nation, including acts of terrorism, cyber attacks, 

crime, pandemics, and catastrophic natural 

disasters”

• Effective risk management is a key part of such 

preparedness 
Terrorism: Economic Risk

• Why does US economy need terrorism 

risk insurance?

– 9/11 loss concentration: business interruption 

- 33%, property - 30%, liability - 23%

– Protecting against economic dislocation 

imperative for resilience

– Equitable sharing of burden of loss

– Ultimately a national security issue – there is 

no national security without economic security

– Long-term issue – not temporary peril
TRIA: Economic Risk

• Why does real estate industry need terror 

insurance?

– Real estate houses the US economy

– Real estate a remains a target

– Lenders require coverage

– Shareholders require protection

– Real estate is owned by pension funds, 

private equity, insurance companies, others

– Investors, pension funds are all at risk
TRIA: Economic Risk

• Commercial real estate debt market $3.8 trillion - mostly 

financed by commercial banks, commercial mortgage 

backed securities (CMBS), life companies and pension 

funds

• Without terrorism risk coverage, 

– Commercial lenders will not make CRE loans

– Existing borrowers will be in technical default, violating 

financing covenants

– Raises serious safety and soundness issues 

– Risk shifted to lenders, shareholders, pensioners, 

bondholders 
Terrorism Risk: A National Peril

Terrorism risk remains a threat to the homeland –

– Since 9/11, there have been at least 73* terrorist plots 

against the homeland 

– Increasing frequency: 22 successful or interrupted 

terrorist plots since 2015

– Of the 73 plots, at least 49 could be considered 

homegrown terror plots**

– New York, Washington remain targets, but nongateway cities are at risk 

– Recent targets range from military facilities, mass 

gatherings, nightclubs, bars, and shopping malls

*Federal Bureau of Investigation

**Heritage Foundation

Terrorism Risk: Impossible Bet

• Risk models only work where there is extensive loss 

experience, but terrorism acts are man-made, infrequent, 

potentially catastrophic and coordinated to overcome 

loss mitigation efforts

– Impossible to accurately estimate and model the 

likelihood of future attacks 

– Reinsurers withdrew from market after 9/11

– GAO, PWG concluded that “acts of terrorism” are 

uninsurable risks; private market still lacks capacity 

• Reinsurance markets have expanded capacity but still 

lack the capacity to insure the US economy, meet 

policyholder needs 
RAND

• Terrorism risk models based on historical events or 

theories of terrorist decision making are limited: They 

cannot extrapolate to estimate the likelihood of future 

attacks from terrorist threats beyond those that have been 

already recognized

• The $27.5 billion (pre 2015 reauthorization amount) 

threshold for aggregate insured losses in TRIA ensures 

that the insurance industry, rather than the taxpayer, is 

ultimately responsible for paying for incidents that are 

within the realm of the industry's modeling capability

National Security Perspectives on Terrorism Risk Insurance in the United States, RAND, 2014
RAND

• 2014 RAND study found that terrorism remains a 

threat to the US 

• If TRIA expires and the take-up rate for terrorism 

insurance falls, the US would be less resilient to 

future terrorist attacks

• RAND concludes that a failure to reauthorize 

TRIA backstop program could have negative 

consequences for US national security 

National Security Perspectives on Terrorism Risk Insurance in the United States, RAND, 2014
TRIA Protects Taxpayers

• According to a RAND Corporation study, 

taxpayers are better served if TRIA remains in 

effect rather than being allowed to expire

• Without TRIA, there would be less insurance 

coverage and greater uninsured loss, hence 

greater demand for disaster assistance, leading 

to increased federal spending

• In the absence of a terrorist attack, TRIA costs 

taxpayers little, and in the event of a terrorist 

attack, it is expected to save taxpayers money

The Impact on Federal Spending of Allowing the Terrorism Risk Insurance Act to Expire, RAND Center for Terrorism 

Risk Management Policy, 2014. 
TRIA: Sensible Compromise 

• Federal government remains exposed to terrorism 

peril: cannot take an ostrich-like approach

• Not clear that a robust private market alternative 

exists

• Permanent program would provide certainty about 

resources in the event of another attack

• TRIA provides a sensible compromise between 

government and economy 

– Limits federal involvement to only severe acts

– Policyholders, insurance industry cover significant 

first loss position 
Permanent Program Essential

• A permanent program is essential

– At least 14 other nations recognize that 

private markets cannot quantify terrorism risk, 

and each has a permanent terrorism 

insurance program

– Markets need certainty

– Market disruption around renewals

– Risk accentuated by 12 day lapse

– Long term assets do not mesh with short term 

solutions
Elements of a Permanent Program?

• Important to develop a strategy for a permanent 

national terrorism insurance program that would 

make coverage available, enabling policyholders 

to secure the terrorism risk coverage they need 

without facing periodic renewals by USG

• Two basic conceptual approaches: 

– Post-funded program, which could be extending the 

current TRIA program 

– Pre-funded pooling structure 
Elements of a Permanent Program?

• Extending the existing program provides a solution that 

the market understands, and therefore offers simplicity

• A pool based program would likely entail additional 

complexity (including some accounting changes) but 

would allow the industry to build dedicated reserves to 

address the risk

• In the long run, the pool might also provide an 

opportunity for the use of reinsurance

• Policyholders are willing to pay into to a pre-funded 

structure in exchange for permanent program
Working with the ACRSM, Insurance Industry, FIO

• Appreciate the opportunity to participate today

• Since 9/11, policyholders have had a 

constructive partnership with insurance industry 

and the Treasury Department

• A successful program must work for insurers; it 

must also work for policyholders 

• We look forward to working with the ACRSM, 

FIO and the insurance industry toward 

development of an effective long-term solution
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