Terrorism Risk Insurance: A Summary of Legislative Proposals

Publication Date: December 2001

Publisher: Library of Congress. Congressional Research Service

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Research Area: Business

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Abstract:

The insurance industry faces an estimated $40 billion to $70 billion in claims tied to terrorist attacks on the World Trade Center and the Pentagon on September 11, 2001, and it remains exposed to significant risk from possible future terrorist acts. As a result of these events, insurance companies have become reluctant to provide insurance against losses arising from possible terrorist attacks, and are seeking exclusions for terrorism coverage in many policies, including commercial lines, and personal automobile, homeowners, and group life. This threatened lack of terrorism coverage in commercial and personal insurance policies could have a significant impact on a broad range of businesses and personal consumers.

The Bush Administration, insurance trade associations, and Members of Congress have made various proposals to establish a federal "backstop" of the private insurance (reinsurance) mechanism for the peril of terrorism. A federal backstop would involve taxpayer funds through loans or direct assistance to pay claims resulting from future terrorist attacks.

With time running out before Congress adjourns for the year, finding consensus on the design of a mechanism for insuring terrorism risks has been difficult. On November 29, 2001, the House passed H.R. 3210, largely along party lines. Action now turns to the Senate, where several Senators have introduced competing bills. Should Congress not pass legislation and state insurance regulators not allow terrorism exclusions from commercial and personal policies, insurers could face serious financial consequences.

This report discusses and compares the House bill and three competing Senate bills - S. 1743, S. 1744, and S. 1751. This report will be updated as events warrant.