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An Overview of The Terrorism Risk Insurance Act

By David G. Mayer
September 11, 2003

The Terrorism Risk Insurance Act of 2002 (the Act) was signed by President Bush on November 26, 2002 and is available at: http://frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=107_cong_bills&docid=f:h3210eas.txt.pdf.

Lessors should be familiar with the Act as it provides protection against certain terrorist threats and affects multiple lines of insurance coverage they may want from lessees. The Act also requires awareness of new changes in lessors' insurance documentation and coverage.

Congress passed this legislation after insurers either canceled or excluded coverage following the events of September 11, 2001 and forced insurers back into the business of providing terrorism insurance. The Act is a short-term plan, which expires December 31, 2005, and responds to occurrences in excess of $5 million. It requires that the Secretary of Treasury certify that an event is an 'act of terrorism.' Once this certification occurs, insurance companies and the federal government share the risk of loss of an act of terrorism. The federal government will pay up to $100 billion in losses per year after insurers pay their deductible and ten percent of the losses in excess of the deductible. The deductibles for insurance companies are reflected in a percentage of premiums as follows:


  • 2003 ' 7 percent of direct premiums earned by insurers
  • 2004 ' 10 percent of direct premiums earned by insurers
  • 2005 ' 15 percent of direct premiums earned by insurers

The lines of insurance affected under the Act include property insurance, liability insurance, aviation and marine insurance.

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