Every two years U.S. Treasury issues a report to Congress on the performance of the Terrorism Risk Insurance Program. The last two reports — issued in 2018 and 2020 — include data on insured losses and federal backstop reimbursements expected under loss scenarios developed by Treasury. As described in the attached PowerPoint and 8 minute video Treasury’s report tells us some important facts about how the program would perform should the country face another terrorist attack:
First, captives dominate the program — especially for events small than September 11 and for NBCR terrorism. A captive is an insurance company set up as a private, dedicated insurance company for its owner. Typically, terrorism risk captives are set up by large corporations that can afford to capitalize and manage their own insurance companies.
Second, captives take far more out of the program for every dollar paid to a policyholder in claims than traditional insurers. As you will see, TRIA is really a program for captives.
Third, small businesses, nonprofits and local governments who do not have the resources to set up their own personal insurance companies get the short end of the stick under the program. All the money Treasury pays out to captives gets marked up by 40% and billed out regular policyholders in the form of surcharges.
Finally, many small insurers have complained about the $200 million program trigger. Treasury’s modeled loss scenarios show it is completely irrelevant. The program trigger could be increased to $1 billion or even $2 billion and it would not impact traditional insurers — although captives and non-US insurers would feel a pinch.
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