Posted On: January 2, 2008, 10:38 pm CST

Posted By: Shrinivas Shikhare

For insurance, the risk must be measurable. Insurers must be able to determine the possible or probable number of events (frequency) likely to result in claims and the maximum size or cost (severity) of these events. In case of acts of terrorism losses are intentional, terrorism risk doesn't have these characteristics for easily 'insurable risk' therefore many countries have adopted model in which insurers pay premiums into the pool which is back-stopped by the government. Example France Government-owned Caisse Central de Reassurance (CCR), In UK the government acts as the reinsurer of last resort, guaranteeing payments above the industry retention.


The structure of this program has encouraged the development of reinsurance for the layers of risk that insurers must bear themselves—deductible amounts and coinsurance—which in turn allows primary insurers to provide coverage. Without TRIA, there would be no private market for terrorism insurance.

It wishful thinking of everyone that there are no terrorist activities and no data available for insurance companies to measure this risk and we do not need such program.
But process of phasing out of TRIA is necessary after few years, how many years is still debatable?