Federal Terrorism Risk Insurance

Example

“After the office building was damaged in a certified terrorist attack, the property owner was able to file a claim under the federal terrorism risk insurance program when damages exceeded the insurer's retention threshold.”

Memory Tip

Remember 'FEDS Fight Fear' - the Federal government helps Fight the Fear of terrorism by backing insurance coverage.

Why It Matters

Without federal backing, many insurers would exclude terrorism coverage entirely or charge prohibitively high premiums, making it difficult for businesses to obtain comprehensive property insurance. This program keeps terrorism coverage accessible and prevents economic paralysis in high-risk areas, protecting both individual businesses and the broader economy from terrorism-related disruptions.

Common Misconception

Many people think this federal program provides free terrorism insurance directly to businesses and individuals, but it actually works as a backstop for private insurers. Property owners still need to purchase terrorism coverage from private insurance companies; the federal program simply helps insurers manage catastrophic losses and keep coverage available in the marketplace.

In Practice

A shopping mall suffers $50 million in damage from a certified terrorist attack. The insurance company has a $10 million terrorism retention, so they pay the first $10 million. Under the federal program, the government then covers 80% of the remaining $40 million ($32 million), while the insurer pays the remaining $8 million. This federal support allows the insurer to pay the full claim without facing bankruptcy, ensuring the mall owner receives compensation to rebuild.

Etymology

This program was established in 2002 following the September 11, 2001 terrorist attacks, when many insurers began excluding terrorism coverage due to the catastrophic and unpredictable nature of such losses.

Common Misspellings

Related Terms

More in insurance

Other insurance terms you should know

See Also