Terrorism Risk Insurance: An Overview

Publication Date: July 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Business

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Abstract:

After September 11, 2001, many businesses were no longer able to purchase insurance protecting against property losses that might occur in future terrorist attacks. Addressing this problem, Congress enacted the Terrorism Risk Insurance Act of 20021 (TRIA) to create a temporary program to share future insured terrorism losses with the property-casualty insurance industry and policyholders. The act requires insurers to offer terrorism insurance to their commercial policyholders, preserves state regulation of this type of insurance, and directs the Secretary of the Treasury to administer a program for sharing terrorism losses. The three-year program that TRIA created backs up commercial property and casualty insurance, covering up to $100 billion each year after set insurer deductibles. The government pays 90% of insured losses over the deductible, with the insurer paying 10%.

Concern was expressed even before the enactment of TRIA that a three-year program would be too limited to allow the private sector to develop the capacity to insure terrorism risk. In the 109th Congress, two bills have been introduced: S. 467 by Senator Christopher Dodd and H.R. 1153 by Representative Michael Capuano. The Senate Banking Committee held an oversight hearing on TRIA on April 14, 2005. On June 30, 2005, the Treasury issued a report opposing the extension of TRIA, on the grounds that the economy has improved since 9/11 and that TRIA has the effect of crowding out innovation and capacity building by private insurers. This report provides an overview of the issues, including a summary of TRIA and the TRIA extension legislation. It will be updated as significant events occur.