Prior to September 2001, terrorism was covered by a standard commercial insurance policy. Either as a direct mention in the policy wording or by its omission, it was covered.
But the attacks on 9/11 changed everything. Today, an insurance industry that looks much different than 25 years ago continues to try to urge federal lawmakers to continue what is essentially a reinsurance program that allows insurers to cover the risk.
The terrorism attack of 9/11 shook the industry’s understanding of the risk immediately, as the nation came to grips with what happened and as workers and investigators shifted through the wreckage. Terrorism’s potential to cause catastrophic loss of life, injury, and property was laid before us.
“In addition to the tragic loss of life, the 9/11 attacks had a devastating impact on our economy as, for the first time, we were faced with a catastrophic loss caused by intentional human acts, and the risk of future attacks,” said Jimi Grande, senior vice president of federal and political affairs for the National Association of Mutual Insurance Companies (NAMIC).
The industry also grappled with a new epiphany it knew but never needed to contemplate in the manner that 9/11 prompted. Historical data is scarce. Terrorism is not random, or accidental. The accumulation of risk is high. The potential severity of loss is much higher than other lines of insurance.
In the immediate months to follow 9/11, insurers filed requests to exclude terrorism coverage from policies, and by early 2022 most state regulators granted the requests. This left a void threatening the very thing the country yearned to do – rebuild. The knock-on effects of no available terrorism coverage would include a standstill in lending and construction.
By the end of 2002, the government stepped in to pass the Terrorism Risk Insurance Act (TRIA), a private-public partnership by which required privately-insured risk would be backstopped by the federal government. The program goes into effect when an act of terrorism is certified by the Secretary of the Treasury, and an act causes at least $5 million in losses. It also includes insurer deductibles and copays but TRIA has never been triggered by a certified terrorism event.
