Past changes to the federal terrorism insurance backstop have reduced the government’s exposure to the program and the market for coverage remains stable, but there is potential for confusion over coverage issues should a loss occur, according to reports released this week by the congressional watchdog.

Two reports by the United States Government Accountability Office noted that changes made to the near two-decades-old program –  widely referred to as TRIA – include raising the amount of industry losses needed to trigger government coverage, which potentially reduces the number of events that qualify for federal payments.

Each reauthorization of TRIA, which was passed in the wake of the Sept. 11, 2001, terrorist attacks, through 2015 reduced the magnitude of the government’s exposure, the GAO said

For example, the program trigger rose over time, from insurance industry losses of $50 million in 2003 to $200 million in 2020.

The deductible for individual insurers increased from 7% of prior-year direct-earned premiums for eligible lines in 2003 to 20% for 2020, also reducing the potential federal share of payments. The 2015 reauthorization required incremental reductions in the federal share of losses over five years, with the industry aggregate retention amount rising from 30% to 40%.

The 2019 reauthorization extended the program until 2027 but did not make any changes to the program parameters.

The GAO found that even as the government’s exposure decreased and insurers’ exposures increased, the market for terrorism risk remains stable. 

Insurers, however, have raised some concerns, according to the GAO reports

The report said insurers are uncertain how the government defines insured losses for the purposes of calculating whether the program's $200 million trigger or $100 billion cap have been reached. 

For example, some insurers interpreted insured losses to include the portion of losses policyholders retain, which was different from the government's interpretation. Differences in interpretations could lead to disputes between insurers and the government following a terrorist event, the GAO report said.

According to the statute, the government cannot certify an event as an act of terrorism under TRIA if the aggregate property/casualty “insurance losses” resulting from the event are less than $5 million.