When the Terrorism Risk Insurance Act (TRIA), providing for a government backstop facility for terrorism, was passed in the US in 2002, very few believed that it would offer anything more than a stopgap comfort period for insurers to tide over the 9/11 aftermath. On the other hand, five years later when the Act is being actively considered for a second extension—very few feel it can be discontinued in the foreseeable future without having disastrous consequences. What are the reasons behind this total change of mindset?

For how long and to what extent federal governments should be involved in terrorism insurance has been a hotly-debated issue in the US after 9/11 attack. Before 9/11, the US federal government was not actively involved in terrorism insurance, the prime reason being that terrorism was most often not perceived to be a real enough threat before the World Trade Center holocaust. Also, major instances of terrorism were not many. In fact, terrorism risk was not even seen to be enough of a tangible risk to be factored separately into insurance contracts, and was mostly categorized under `perils', in general—both in the US as well as in other parts of the world. The other factor was the host of reasons that clearly went against governments involving themselves in private insurance, as against the benefits it generated.

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