Certified Acts Of Terrorism

Date Posted: 8/4/2013 1
Author: Author Unknown
Certified Acts of Terrorism

Before September 11, 2001, insurers of businesses did not specifically address terrorism coverage. This changed due to the large financial cost of the September 11 attacks.

Because of the difficulty in modeling expected losses, reinsurers largely withdrew from the market for terrorism coverage which resulted in primary insurers doing the same. Most of these new exclusions were approved by state insurance regulators.

Congress responded by enacting the Terrorism Risk Insurance Act (TRIA) in November 2002 to provide government reinsurance for large scale terrorist attacks. This act requires that insurers of business offer “terrorism” coverage as “terrorism” is defined in the act. The Act provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism.

A certified act of terrorism is a terrorist act that is eligible for coverage under the Terrorism Risk Insurance Act (TRIA). Such acts are certified by the Secretary of the Treasury, applying criteria spelled out in TRIA. To qualify as a certified act of terrorism, the incident must: (1) be a violent act or an act that is dangerous to human life, property, or infrastructure; (2) cause damage within the United States or other area of U.S. sovereignty (e.g., an U.S. embassy, airplane, ship); (3) be committed by someone as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the U.S. government by coercion; and (4) produce property-casualty (P&C) insurance losses in excess of $5 million. Insurers paying claims in response to certified acts of terrorism qualify for federal reimbursement.