Terrorism Insurance - The 2002 Marketplace

Publication Date: June 2002

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Business

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Abstract:

The terrorist attacks of September 11 resulted in the largest insured catastrophic loss in history, estimated to total as much as $70 billion. Even though the insurance industry committed to pay losses resulting from the attacks, industry spokesmen asserted that in view of the impending unavailability of terrorism reinsurance on January 1, 2002, primary insurers would not be able to cover future terrorism losses on renewals of commercial risk policies without a federal backstop.

In the 107th Congress, first session, the House of Representatives passed H.R. 3210 on November 29, 2001, providing for a temporary federal backstop. In the Senate, four similar measures were introduced (S. 1743, S. 1744, S. 1748, and S. 1751), but no action was taken. Senate Majority Leader Tom Daschle indicated that backstop legislation would be considered again in 2002, and on June 7, 2002, Senators Dodd, Sarbanes, Schumer, and Reid introduced S. 2600, the Terrorism risk Insurance Act. Meanwhile, there are indications that the insurance marketplace has made strides toward resolving a major part of the terrorism coverage issue and federal legislation may be less likely to have its originally intended impact. However, recently the Joint Economic Committee found that the market for terrorism insurance remains limited, and that the problems associated with terrorism insurance pose a significant threat to sustained economic growth. This report looks at the terrorism insurance marketplace in 2002 in the absence of federal legislation, the economic outlook for the insurance industry, and the regulatory responses of state insurance officials. This report will be updated as events warrant.