How is an insurer's deductible calculated under TRIPRA?

Under the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA), an insurer's deductible is calculated as a percentage of the insurer's direct earned premium. Specifically, this means that the deductible represents a set percentage of the premiums that the insurer has collected from its policyholders for the coverage that it has written.

This structure aligns with the intent of TRIPRA, which is designed to encourage insurers to offer terrorism insurance coverage while providing a federal backstop for claims resulting from acts of terrorism. By basing the deductible on the direct earned premium, it ensures that the amount an insurer is required to cover before federal assistance kicks in is directly proportional to the size of their premium base, reflecting their exposure in the market.

The focus on direct earned premium in the calculation provides a clear method for determining financial responsibility that is aligned with the insurer’s risk profile. It also serves to ensure that the insurer has a stake in the coverage they provide, as they must absorb a certain amount of the losses before federal reimbursement begins. This calculation effectively balances the financial responsibilities between insurers and the federal government.