by Robert J. Rhee
September 11, 2013
The terrorist attacks of September 11, 2001, inflicted enormous losses on the insurance industry and businesses. In the wake of the disruptions occurring in the insurance market at the time, the government enacted the Terrorism Risk Insurance Act of 2002 to create a “temporary” federal backstop against catastrophic losses. This program subsidized private risk with public funds through a cost-sharing program. In response to effective lobbying by the insurance industry and business interests, Congress has twice extended the program. The program is now scheduled to sunset at the end of 2014, 12 years after this supposedly temporary program was instituted. Terrorism risk is not more severe than other insurable risks such as natural catastrophes, and a federal backstop stakes public money to protect the insurance industry, and subsidize the terrorism risk insurance premiums for commercial policyholders. The private market is capable of underwriting this risk.