Order Code RS21211
Updated June 10, 2002
CRS Report for Congress
Received through the CRS Web
Terrorism Insurance – Comparison of
H.R. 3210 and S. 2600

S. Roy Woodall, Jr.
Insurance Consultant
Government and Finance Division
Summary
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 difficulty in obtaining reinsurance for the risk of future
terrorist attacks, primary insurers would not be able to cover future terrorism losses
without a federal backstop.
On November 29, 2001, the House of Representatives passed H.R. 3210, the
Terrorism Risk Protection Act, providing for a temporary federal backstop. In the
Senate, four similar measures were introduced in 2001(S. 1743, S. 1744, S. 1748, and
S. 1751), but no action was taken during the first session of the 107th Congress. Senate
Majority Leader Tom Daschle indicated that backstop legislation would be considered
again in 2002, but efforts to reach a unanimous consent (UC) agreement to bring H.R.
3210 to the floor of the Senate and amend it by substituting the language of a
compromise proposal, the Terrorism Risk Insurance Act, were not successful. On June
7, 2002, Senators Dodd, Sarbanes, Schumer, and Reid introduced the compromise
proposal as a separate bill (S. 2600).
This report discusses and compares H.R. 3210 and S. 2600, and will be updated as
events warrant.
Background
The terrorist attacks of September 11 resulted in the largest insured catastrophic loss
in history, estimated to total as much as $70 billion. At the time, the insurance industry
committed to pay losses resulting from the attacks and not invoke “act of war” clauses,
despite considerable discussion that such an invocation might be appropriate. Despite the
magnitude of the projected losses, the solvency of the insurance industry and most
insurance firms has not apparently been threatened, in part because of the spreading of
losses among many secondary insurers through the industry practice of “reinsurance.”
Congressional Research Service ˜ The Library of Congress

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In light of the huge “9/11” losses and because of the lack of any actuarial basis for
determining loss exposures, however, many reinsurers have indicated an unwillingness
to accept the risk of loss from terrorism in the future. In turn, industry spokesmen have
asserted that in view of the impending difficulty in obtaining reinsurance for the risk of
future terrorist attacks, primary insurers would not be able to cover future terrorism losses
without some form of federal backstop. There have been anecdotal accounts of
dramatically increased premiums or outright inability of some businesses and major real
estate landmarks to get insurance that includes coverage for acts of terrorism. Several
proposals for a federal backstop were introduced in Congress in 2001, and one – H.R.
3210 – passed the House on November 29, 2001. On April 24, 2002, a unanimous
consent (UC) agreement was proposed to bring H.R. 3210 to the Senate floor and amend
it by substituting the language of the compromise agreed to by Banking Committee
members, Senators Dodd, Sarbanes, and Gramm. Efforts to reach a UC were not
successful, and on June 7, 2002, Senators Dodd, Sarbanes, Schumer and Reid introduced
the compromise proposal as a separate bill (S. 2600).
Advocates of backstop proposals say that the program is needed because the lack
of such terrorism coverage in the short term could in turn impede the ability of financial
services providers to finance commercial property acquisitions and new construction
projects. On May 23, 2002, the Joint Economic Committee issued a report (available at
[http://www.house.gov/jec]),which 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. A discussion of the state of the market for terrorism
insurance can also be found in CRS Report RS21106, Terrorism Insurance - The 2002
Marketplace.
Comparison of H.R. 3210 and the S. 2600
S. 2600 is similar to the House-passed legislation in several aspects, such as
establishing a temporary program, providing for oversight by the U.S. Treasury, setting
triggers (losses sufficient to bring the federal backstop into play), setting definitions of
what constitutes a terrorism event, and preempting state laws. The two bills differ with
respect to whether or not assistance must be repaid, the nature of legal modifications and
limitations, and other specific details.
Key provisions, similarities, and differences are set out in the following chart.
Provision
H.R. 3210
S. 2600
Name
Terrorism Risk Protection
Terrorism Risk Insurance Act
Act
Purpose
Provide a temporary
Provide a temporary
government loan program
government/industry program
for sharing losses
Governance
Oversight by Secretary of
Secretary of Treasury – may
Treasury – may issue
establish “reasonable
regulations
procedures” and rules

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Provision
H.R. 3210
S. 2600
Length of
One year, but may be
One year, but may be extended
Program
extended two additional years
for one additional year
Trigger
Losses exceed $1 billion
Losses exceed $5 million, then
(Industry-wide)
two levels of shared losses: up
to $10 billion, and over $10
billion (increases to $15
billion if extended to second
year)
Trigger
Industry-wide losses exceed
Trigger is a retention amount
(Individual
$100 million and individual
referred to as “deductible” at
Insurer)
insurer’s losses exceed 10%
first level based on insurer’s
of capital surplus and 10% of
market share times $10 billion
net premiums
($15 billion in second year)
Post Trigger
90% loan, but if trigger is
80% cost sharing for amounts
Federal
industry-wide, then subject to
over individual insurers’
Assistance
a $5 million deductible per
market share “deductible” (net
insurer
of reinsurance) up to $10
billion, then 90% over $10
billion
Cap on
$100 billion
$100 billion per year (applies
Assistance
to industry liability also,
capping industry share at $19
billion)
Covered Lines
Commercial
Commercial – mandatory
Personal – optional
Mandatory
No, but appears as though
Yes, participating insurers
Terrorism
insurer not writing terrorism
must offer terrorism insurance
Coverage
policies still subject to
in all commercial policies
assessments
(assumes opt-out by
policyholder)
Pay-back
Yes, through assessments on
No
insurers for first $20 billion,
and surcharges on
policyholders for amounts
from $20-$100 billion, with
civil monetary penalties for
failure to pay
Application to
Yes. If Secretary of Treasury,
Yes. Secretary of Treasury, in
Self-insureds and
in consultation with NAIC, so
consultation with NAIC may
Offshore Insurers
determines
establish procedures for
municipalities and other
entities in existence on 9/11

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Provision
H.R. 3210
S. 2600
Definition of
Yes. To be developed by
Yes. As certified by Secretary
Terrorism
Secretary of Treasury and
of Treasury, in concurrence
NAIC consistent with the
with Secretary of State and
requirements of the Act
Attorney General – based on
requirements in the Act (losses
exceed $5 million)
Cost Disclosure
Yes. Sense of Congress that
Yes, as a condition for federal
of Terrorism
states require separate
payment
Coverage
disclosure of cost of terrorism
coverage
Consultation with
Yes. As to assessments,
Yes. As to life insurance
State Insurance
surcharges, claims
study and non-insurer entities
Regulators and
investigation, and covered
to be covered
NAIC
perils
State Regulation
Yes. As to “terrorism”
No
Uniformity
definitions and underwriting
standards
Civil Actions and
Federal cause of action in
General Federal cause of
Litigation
district court(s) designated by
action (no designation by
Judicial Panel on
Judicial Panel on Multidistrict
Multidistrict Litigation
Litigation)
Legal
Punitive damages prohibited.
Punitive damages do not
Modifications and
Non-economic damages
constitute “insured losses” and
Limitations
proportional as to fault. U.S.
thus no federal participation.
right of subrogation. 20%
U.S. right of subrogation
cap on attorneys’ fees
Studies
Life insurance, railroad and
Life insurance and other lines
trucking insurance, and
of insurance
reinsurance pool system for
future acts of terrorism
Reports from
None required, except for
Only as to claims (premium
Insurers
data not available to NAIC
rates reported to NAIC)
State Preemption
Yes. Of impediments to
Yes. As to “terrorism”
increasing premiums to
definition and state prior
recover assessments, but not
approval rating statutes.
as to filings or subsequent
Access to books/records by
review of rates
Secretary of Treasury
guaranteed

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Provision
H.R. 3210
S. 2600
Civil Monetary
Yes. $1 million against
Yes. To be assessed by
Penalties
insurers for failing to pay
Secretary of Treasury for
assessments or surcharges,
violations of Act or of any
erroneous data, or violation
rule, regulation or order
of regulations
Report to
Yes. If Secretary extends the
Yes. Not later than nine
Congress
term of the program, must
months after the date of
state reasons
enactment, covering required
items, plus joint report 12
months later with Comptroller
General as to NAIC, FTC, and
GAO reports
.

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