A commercial property insurer is finalizing a policy for a large retail complex and must adhere to the Terrorism Risk Insurance Act (TRIA). During an internal compliance meeting, a senior underwriter explains the mandatory offer requirement and the federal backstop mechanism to junior staff. Which of the following statements accurately describes the insurer's obligations and the program's financial structure?
- The insurer is mandated to offer terrorism coverage on the same terms as the underlying policy, and the federal government shares in the losses only after the insurer's individual deductible is met following a certified act.Answer
- BThe federal government assumes the role of primary insurer for all terrorism-related perils, completely eliminating the commercial property insurer's direct financial liability in the event of a certified act.
- CThe insurer is strictly required to offer terrorism coverage only if they have first secured a private reinsurance treaty to cover the potential catastrophic losses.
- DThe decision to offer terrorism coverage is voluntary for the insurer, but if offered, the state's Department of Insurance determines the specific federal reimbursement percentage for that policy.
Answer
The insurer is mandated to offer terrorism coverage on the same terms as the underlying policy, and the federal government shares in the losses only after the insurer's individual deductible is met following a certified act.
The correct answer accurately synthesizes the two core components of TRIA for insurers: the mandatory requirement to offer coverage ('make available' provision) and the financial structure where the federal government acts as a backstop, sharing in the cost only after the individual insurer has paid its required deductible.
Step-by-Step Solution
Key Concept
Terrorism Risk Insurance Act (TRIA) Mandatory Offer and Federal Backstop Mechanics