Terrorism Risk Insurance Legislation: Issue Summary and Side-by-Side (CRS Report for Congress)
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| Release Date |
Revised Jan. 12, 2006 |
| Report Number |
RL33177 |
| Report Type |
Report |
| Authors |
Baird Webel, Government and Finance Division |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Prior to the September 11, 2001, terrorist attacks, insurance covering terrorism losses was
normally
included in general insurance policies without cost to policyholders. Following the attacks, both
primary insurers and reinsurers pulled back from offering terrorism coverage, citing particularly an
inability to calculate the probability and loss data critical for insurance pricing. Some argued that
terrorism risk would never be insurable by the private market due to the uncertainty and potentially
massive losses involved. Because insurance is required for a variety of economic transactions, it was
feared that a lack of insurance against terrorism loss would have wider economic impact.
Congress responded to the disruption in the insurance market by passing the Terrorism Risk
Insurance Act of 2002 (TRIA). TRIA created a temporary program, expiring at the end of 2005, to
calm the insurance markets through a government backstop for terrorism losses and to give the
private industry time to gather the data and create the structures and capacity necessary for private
insurance to cover terrorism risk. From 2002 to 2005, terrorism insurance became widely available
and largely affordable, and the insurance industry greatly expanded its financial capacity. There was,
however, little apparent success on a longer term private solution and fears persisted about wider
economic consequences if insurance were not available. To a large degree, the same concerns and
arguments that accompanied the initial passage of TRIA were before Congress as it considered TRIA
extension legislation.
Congress responded to the impending expiration of TRIA with the passage of two different
bills. The Senate bill, S. 467 , was approved by the Senate on November 18, 2005. The
large majority of the language from the House bill, H.R. 4314 , was inserted into S.
467 and passed by the House on December 7, 2005. S. 467 was titled the Terrorism Risk
Insurance Extension Act, whereas H.R. 4314 was titled the Terrorism Risk
Insurance Revision Act. These titles did reflect essential differences between the two bills. S.
467 extended the current program by two years and further increased the private sector's
exposure to terrorism risk, as did the original act. (During the three years covered by the initial act,
insurance industry deductibles and aggregate retention rose each year.) S. 467 continued
to increase these and also reduced the types of insurance covered by the program and increased the
size of terrorist event necessary to trigger the program. H.R. 4314 extended the program
for two or possibly three years and substantially revised many aspects of it. Among the notable
changes, it excluded some lines of coverage and included others that were not covered before. It
segmented lines of insurance, introducing different deductibles for different lines. It included the
concept of resetting the deductibles and the trigger amount to lower amounts if a terrorist attack
occurs in the future. The final version signed into law closely tracked the Senate legislation.
This report briefly outlines the issues involved with terrorism insurance and includes a
side-by-side of the initial TRIA, TRIA-extension legislation as considered in the House and Senate,
and the final bill as signed by the President. It will not be updated.
