On Sept. 17, 2025, the Housing and Insurance Subcommittee of the House Financial Services Committee held a hearing on the reauthorization of the Terrorism Risk Insurance Act of 2002.
The act began as a temporary federal reinsurance program in the wake of the 9/11 terrorist attacks, which caused an unprecedented $60 billion (current dollars) in insured losses to commercial businesses. It has since been renewed four times and is scheduled to expire at the end of 2027.
There is strong bipartisan sentiment to renew the program for an extended period, as terrorism risk, both foreign and domestic, is problematic for the private market to completely model and mitigate, therefore making insurance on it difficult to underwrite and price without a federal backstop.
The existence of reasonably priced and available insurance encourages economic activity in many sectors and geographic areas. Take-up of the insurance now is about two-thirds, and premiums remain relatively modest compared with a frozen market and heightened concerns about insurer bankruptcies after 9/11. While TRIA has evolved over the years, generally lessening the exposure of the government, the opportunity to renew it should be accompanied by further changes in that direction, to recognize the ability of the private sector to bear even large losses, as evident from recent natural disasters.
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TRIA requires insurers to offer commercial property and casualty insurance for most types of terrorism risk equivalent to their coverage for other risks. However, it does not compel its purchase by businesses nor its price. In return, the federal government reimburses private insurers for a portion of what they pay for terrorism losses.
Although the government does not collect premiums for this coverage, insurers must repay at least some of that reimbursement over time. In particular, the treasury secretary must certify that a single attack caused more than $5 million in losses and that total aggregate annual terrorism losses surpassed a program trigger of $200 million. After these thresholds are met, each individual insurer has a deductible equal to 20% of its premiums on TRIA-eligible lines of insurance. The Treasury then reimburses insurers for 80% of their losses above the deductible. If total insured losses exceed $100 billion, there is no further federal reimbursement, and insurers are not responsible for paying additional losses. The precise level of aggregate insured losses at which government coverage begins is uncertain because it depends on the distribution of losses among insurers and the sum of the 20% company deductibles (currently $63 billion).
In the years following an attack, the treasury secretary is required to recoup the reimbursements by 2029. The required amount equals 140% of the difference between an aggregate retention amount and the total unreimbursed insured losses. Since 2020, the aggregate retention amount is the annual average of the sum of insurer deductibles for the previous three years, which now stands at $53.3 billion. The recoupment would occur through a premium surcharge on all insurers offering commercial insurance covered by TRIA, though it could vary by lines of insurance and geographic areas.
Nonetheless, issues for TRIA have arisen since 2002. Cyber-liability is now considered a property/casualty line of insurance covered by TRIA and is widely purchased, but in practice, it is difficult to determine whether a cyberattack is terrorism, criminal, or state-sponsored. Nuclear, biological, chemical, and radiological terrorism is covered by TRIA in theory, yet in reality is largely excluded because state insurance regulators permit policies (except workers’ compensation) to exclude the risk.
It has also become clear that many large companies obtain terrorism risk coverage through captive insurers, which, under TRIA recoupment rules, are effectively treated as small insurers with small deductibles, thereby reducing their exposure compared with coverage purchased from large insurers.
To provide certainty to the market, TRIA should be renewed for an extended period of approximately 10 years. Given that horizon, gradual parameter changes should be adopted to expand the responsibilities of private insurers while enhancing the program’s risk-sharing properties.
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In particular, I recommend that the initial program triggers and the liability cap be indexed to price inflation, deductibles be gradually increased to 25%, and Treasury reimbursement be reduced to 75%. The default recoupment period should be seven years, subject to adjustment by the treasury secretary. Extending the “make-available” requirement for NBCR terrorism risk to all TRIA-covered lines is also appropriate.
Finally, the treasury secretary should issue a regulation establishing special rules for captive insurers to prevent gaming of the federal reinsurance program. These changes would enhance the risk-sharing of TRIA in a balanced way for an extended period, making necessary adjustments and providing a strong and certain base for investment and economic activity.
Mark Warshawsky is a senior fellow at the American Enterprise Institute and was assistant secretary for economic policy at the Treasury Department, where he was actively involved in the analysis and policy development for the first renewal of TRIA in 2005.
