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

24 Pages Posted: 26 Mar 2018

See all articles by Erwann Michel‐Kerjan

Erwann Michel‐Kerjan

McKinsey & Co. Inc.

Howard Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department; National Bureau of Economic Research (NBER)

Date Written: Spring 2018

Abstract

The Terrorism Risk Insurance Act (TRIA) established a public–private partnership between the U.S. federal government, private insurers, and all commercial enterprises operating on U.S. soil. Renewed and modified 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. 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 and Kunreuther, Howard C., A Successful (Yet Somewhat Untested) Case of Disaster Financing: Terrorism Insurance Under Tria, 2002–2020 (Spring 2018). Risk Management and Insurance Review, Vol. 21, Issue 1, pp. 157-180, 2018. Available at SSRN: https://ssrn.com/abstract=3149183 or http://dx.doi.org/10.1111/rmir.12094

Erwann Michel‐Kerjan (Contact Author)

McKinsey & Co. Inc. ( email )

Konigsallee 60C
Chicago, IL Quebec 60603
United States

Howard C. Kunreuther

University of Pennsylvania - Operations, Information and Decisions Department ( email )

3730 Walnut Street
558 & 559 Jon M. Huntsman Hall
Philadelphia, PA 19104-5340
United States
212-854-0423 (Phone)
215-573-2130 (Fax)

National Bureau of Economic Research (NBER)

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