Order Code RL33177
CRS Report for Congress
Received through the CRS Web
Terrorism Risk Insurance Legislation:
Issue Summary and Side-by-Side
December 5, 2005
Baird Webel
Analyst in Economics
Government and Finance Division
Congressional Research Service ˜ The Library of Congress

Terrorism Risk Insurance Legislation:
Issue Summary and Side-by-Side
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, particularly on large-scale developments in
urban areas that would be tempting targets for terrorism.
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 give the private industry time to gather the data and
create the structures and capacity necessary for private insurance to cover terrorism
risk. In the past three years, terrorism insurance has become widely available and
largely affordable, and the insurance industry has greatly expanded its financial
capacity. There has been, however, little apparent success on a longer term private
solution and fears persist about wider economic consequences if insurance is not
available. To a large degree, the same concerns and arguments that accompanied the
initial passage of TRIA are still before Congress today.
Congress has responded to the impending expiration of TRIA with two bills that
have been reported out of the committees of jurisdiction. The House bill,
Representative Richard Baker’s H.R. 4314, is awaiting floor consideration whereas
the Senate bill, Senator Christopher Dodd’s S. 467, has already been approved by the
full Senate. S. 467 is entitled the Terrorism Risk Insurance Extension Act whereas
H.R. 4314 is entitled the Terrorism Risk Insurance Revision Act. The titles do reflect
essential differences between the two bills. S. 467 extends the current program two
years and further increases 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 continues to increase
these and also reduces the types of insurance covered by the program and increases
the size of terrorist event necessary to trigger the program. H.R. 4314 extends the
program for two or possibly three years, and also substantially revises many aspects
of it. Among the notable changes, it excludes some lines of coverage and includes
others that were not covered before. It segments lines of insurance, introducing
different deductibles for different lines. It includes the concept of resetting the
deductibles and the trigger amount to lower amounts if a terrorist attack occurs in the
future.
This report briefly outlines the issues involved with terrorism insurance and
includes a side-by-side of the current TRIA and the legislation that is being
considered to revise and extend it. It will be updated if this legislation advances.

Contents
Pending Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
S. 467 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
H.R. 4314 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
List of Tables
Table 1. Side-by Side: Current Terrorism Risk Insurance Act,
S. 437 and H.R. 4314 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Terrorism Risk Insurance Legislation:
Issue Summary and Side-by-Side
Prior to the September 11, 2001 terrorist attacks, insurance covering terrorism
losses was normally included in general insurance policies without a specific
premium being paid. Essentially most policyholders received this coverage for free.
The attacks, and the more than $30 billion in insured losses that resulted from them,
caused a rethinking of the possibilities of future terrorist attacks. In response to the
new appreciation of the threat and the perceived inability to calculate the probability
and loss data critical for pricing insurance, both primary insurers and reinsurers
pulled back from offering terrorism coverage. Many argued that terrorism risk is
essentially uninsurable by the private market due to the uncertainty and potentially
massive losses involved. Because insurance is required for a variety of economic
transactions, many feared that a lack of insurance against terrorism loss would have
wider economic impact, particularly on large-scale developments in urban areas that
would be tempting targets for terrorism.
Congress responded to the disruption in the insurance market by passing the
Terrorism Risk Insurance Act of 2002 1 (TRIA), which was signed by the President
in November 2002. TRIA created the Terrorism Risk Insurance Program, which was
enacted as a temporary program, expiring at the end of 2005, that would calm the
insurance markets through a government backstop for terrorism losses and give the
private industry time to gather the data and create the structures and capacity
necessary for private insurance to cover terrorism risk. Terrorism insurance has
become widely available under TRIA and the insurance industry has greatly
expanded its financial capacity in the past three years. It appears, however, that less
progress has been made on creating terrorism models that are sufficiently robust for
insurers to return to offering widespread terrorism coverage without a government
backstop, and that practically no progress has been made on a private pooling
mechanism to cover terrorism risk. Some see the past three years as proof of the
argument that the private market will never be able to offer insurance to cover
terrorism risk and continue to see the possibility of wider economic consequences if
terrorism insurance again is unavailable. Others, notably the U.S. Treasury
Department, respond that TRIA itself is retarding the growth of this private market
and should be allowed to expire, or at least be reduced from its current form.
1 P.L. 107-297, 116 Stat. 2322, 15 U.S.C. Sec. 6701 note. See CRS Report RS21444, The
Terrorism Risk Insurance Act of 2002: A Summary of Provisions
and CRS Report RS21979,
Terrorism Risk Insurance: An Overview, both by Baird Webel.

CRS-2
Pending Legislation
Congress has responded to the impending expiration of TRIA with two bills that
have been reported out of the committees of jurisdiction. The House bill,
Representative Richard Baker’s H.R. 4314, is awaiting floor consideration whereas
the Senate bill, Senator Christopher Dodd’s S. 467, has already been approved by the
full Senate. S. 467 is entitled the Terrorism Risk Insurance Extension Act, whereas
H.R. 4314 is entitled the Terrorism Risk Insurance Revision Act and the titles do
reflect essential differences between the two bills.
S. 467
Senator Dodd introduced S. 467 on February 18, 2005. As introduced, it was
identical to a bill, S. 2764, introduced by Senator Dodd in the 108th Congress. S.
467, as introduced, would have explicitly extended TRIA for two years, until the end
of 2007, and would have added a “soft landing” year by changing the definition of
an insured loss so that policies written in the second year and extending into a third
year would be covered. The individual insurer deductible was to remain at 15% of
earned premiums during the extension, while the insurance industry aggregate loss
retention amount was to increase from the current $15 billion in 2005 to $17.5 billion
for 2006 and finally $20 billion for 2007. S. 467 also would have directed the
Treasury to promulgate new rules including group life insurance under TRIA.
On June 30, 2005, the Department of the Treasury released a report on TRIA
accompanied by a letter from Secretary Snow indicating that TRIA had achieved its
goal of stabilizing the insurance market and that the Administration would not
support an extension without significant changes reducing the taxpayer exposure
from the program. On November 16, 2005, the Senate Committee on Banking,
Housing, and Urban Affairs marked up S. 467 and substituted an amendment by
Chairman Richard Shelby for the original text. It reported the bill favorably to the
full Senate by voice vote.
As amended, S. 467 would extend the current program two years and further
increase the private sector’s exposure to terrorism risk over the life of the act, as did
the original legislation. During the three years covered by the initial act, insurance
industry deductibles and aggregate retention rose each year. S. 467 would continue
to increase these. It would also reduce the types of insurance covered by the program
and increase the size of a terrorist event necessary to trigger the program.
Specifically, it removes commercial auto, burglary and theft, surety, farm owners
multiple peril, and professional liability (except for directors and officers liability),
as covered lines; raises the insurer deductible to 17.5% in 2006 and 20% in 2007;
decreases the federal share of insured losses from 10% to 15% for 2007; and raises
the event trigger to $50 million in 2006 and $100 million in 2007.
S. 467 was brought to the Senate floor and passed by unanimous consent on
November 18, 2005.

CRS-3
H.R. 4314
H.R. 4314 was introduced by Representative Baker on November 14, 2005, and
marked up by the House Financial Services Committee on November 16. Three
amendments, by Chairman Michael Oxley and Representatives Barney Frank and
Debbie Wasserman Schultz, were adopted in committee by voice vote.2 Chairman
Oxley’s amendment made a number of changes, including adjusting the exact
deductibles for various insurance lines, reducing the program trigger amount in
program years after the second year and striking language that would have preempted
some state laws relating to rate and form filing. Representative Frank’s amendment
increased the size needed by a company or municipality to be considered an “exempt
commercial purchaser” of insurance. Representative Wasserman Schultz’s
amendment added the requirement that life insurers not deny insurance coverage
based on lawful overseas travel. The amended bill was favorably reported to the full
House by a vote of 64-3. In the 108th Congress, the committee had reported
favorably a straightforward extension of TRIA with relatively minor changes. H.R.
4313, however, goes well beyond the previously reported House bill or the changes
recommended by Secretary Snow.
H.R. 4314 as reported limits the types of insurance covered by removing
commercial auto insurance. However, it expands the program to cover domestic
terrorist events; increases the covered types of insurance to include group life and
specific coverage for nuclear, biological, chemical, and radiological (NBCR) events.
It raises the event trigger to $50 million in 2006 and an additional $50 million for
every future year the program is in effect. It also changes the insurer deductible but
does so differently for different lines of insurance, raising it to as high as 25% for
casualty insurance but lowering it to 7.5% for NCBR events. H.R. 4314 lowers the
federal share of insured losses to 80% for events under $10 billion but raises it
gradually to 95% for events over $40 billion. In the case of a terrorist act, the
deductibles and event triggers are to reset to lower levels, with deductibles possibly
as low as 5% in the event of a large attack. It removes the cap on the mandatory
recoupment provision so that all money expended under TRIA would be recouped
by the federal government through a surcharge on insurers in the years after the
attack. H.R. 4314 also creates “TRIA Capital Reserve Funds (CRF),” which would
allow insurers to set aside untaxed reserves to tap in the case of a terrorist event.
H.R. 4314 was not considered on the House floor prior to the recess that began
on November 18, 2005.
Administration Reaction
The Executive Office of the President issued a Statement of Administration
Policy supporting S. 467 on November 17, 2005. It also indicated that the
Administration will strongly oppose “any efforts to add lines of coverage, including
group life insurance, or further expand the program,” which is one component of
H.R. 4313 as reported.
2 Amendment texts can be found at [http://financialservices.house.gov/legis.asp?formmode
=item&number=430].

CRS-4
Table 1. Side-by Side: Current Terrorism Risk Insurance Act, S. 437 and H.R. 4314
Provision
15 U.S.C. 6701 note
S. 437 (as passed)
H.R. 4314 (as reported)
Title
Terrorism Risk Insurance Act of 2002
Terrorism Risk Insurance Extension
Terrorism Risk Insurance Revision Act of 2005
Act of 2005
Expiration Date
December 31, 2005
December 31, 2007
December 31, 2008, or December 31, 2007 if the
(Sec. 108(a))
(Sec. 2)
Secretary of the Treasury determines that the
“Commission on Terrorism Risk Insurance”
established by the bill does not fulfill the bill’s
requirement to submit a report.
(Sec 108(a))
“Act of
For an act of terrorism to be covered
No Change
Removes requirement that a terrorist act must
Terrorism”
under TRIA, it must be a violent act
have been committed on behalf of a foreign
Definition
committed on behalf of a foreign person
person or interest.
or interest as part of an effort to coerce
(Sec. 102(1)(A))
the U.S. civilian population or influence
U.S. government policy. It must have
resulted in damage within the United
States or to a U.S. airliner or mission
abroad. Terrorist act is to be certified by
the Secretary of the Treasury in
concurrence with the Attorney General
and Secretary of State. (Sec. 102(1)(A))

CRS-5
Provision
15 U.S.C. 6701 note
S. 437 (as passed)
H.R. 4314 (as reported)
Affiliated Insurer
An affiliate is an entity, that controls, is
No Change
Removes the definition of “control” and redefines
Definition
controlled by, or under common control
an affiliate as an insurer that owns, is owned by,
with an insurer. Control is defined as the
or under common ownership with another insurer.
power to vote 25% of an entity’s shares or
Defines “ownership” as owning 25% or more of
to appoint a majority of the board of
an insurer’s voting securities.
directors. Alternately, the Secretary is
(Sec. 102(2) and 102(14))
given the authority to determine that one
entity controls another. (Sec. 102 (2-3))
Limitation on Act
Terrorist act would not be covered in the
No Change
Adds group life insurance to workers
of Terrorism
event of a war, except for workers
compensation as covered lines in case of war.
Certification in
compensation insurance.
(Sec. 102(1)(B))
case of War
(Sec. 102(1)(B)(I))
Aggregate
Terrorist act must cause more than $5
Raises this amount to $50,000,000 for
Creates a “Program Trigger” that would prevent
Industry Loss
million in losses to be covered.
2006 and $100,000,000 for 2007. (Sec.
coverage under the program unless aggregate
Requirement/Prog
(Sec. 102(1)(B)(ii))
3)
industry losses exceed $50,000,000 in 2006 and
ram Trigger
raises this limit by $50,000,000 in each
successive program year. If there is a terrorist
attack, the subsequent trigger amount is reduced
by $10,000,000 for each $1,000,000,000 in
insured losses with a lower limit of $50,000,000
(Sec 103(e)(1)(B))

CRS-6
Provision
15 U.S.C. 6701 note
S. 437 (as passed)
H.R. 4314 (as reported)
Insurer Deductible
7% of earned premium for 2003, 10% of
Raises this to 17.5% for 2006 and 20%
Implements different deductibles for different
earned premium for 2004, 15% of earned
for 2007.
lines of insurance, raises deductibles over time,
premium for 2005
(Sec. 3)
except in the year following a terrorist attack, in
(Sec. 102(7))
which deductibles would be reduced. For 2006,
deductibles would be: 16% for workers
compensation, 21.5% for group life, 20% for
property, and 25% for casualty insurance, unless
the loss was caused by NCBR terrorism, in which
case the deductible would be 7.5% for all lines.
In program years after 2006, the deductibles
would increase 2.0% per year for workers’
compensation, 2.5% per year for group life and
property, 5% per year for casualty, and 0.75% in
the case of a loss in any line due to NCBR
terrorism. In the case of a terrorist attack, all
deductibles would be reduced in the year
following by 0.1% for every $1,000,000,000 in
insured loss, to a minimum of 5%. After this
reduction, the annual increases would again take
effect.
(Sec 102(12))

CRS-7
Provision
15 U.S.C. 6701 note
S. 437 (as passed)
H.R. 4314 (as reported)
Covered lines of
Commercial property casualty insurance
Adds commercial auto, burglary and
Adds commercial auto as a line that is excluded
Insurance
including excess insurance, workers’
theft, professional liability (except for
from coverage. Adds group life insurance as a
compensation, and surety but excluding
directors and officers liability), and
line that is included in coverage, but specifically
crop insurance, private mortgage
farm owners multiple peril to lines that
excludes group life insurance that is either
insurance, title insurance, financial
are excluded from coverage.
“Corporate Owned Life Insurance” or “Business
guaranty insurance, medical malpractice
(Sec. 3)
Owned Life Insurance” as defined by the IRS.
insurance, health or life insurance, flood
(Sec. 102(4), 102(8), and 102(19))
insurance, or reinsurance.
(Sec. 102(12))
Mandatory
Every insurer must make terrorism
No Change
Adds that every insurer must make coverage for
Availability
coverage that does not differ materially
NCBR terrorist events available; however, this
from coverage applicable to losses other
coverage may differ materially from the coverage
than terrorism.
applicable to other losses.
(Sec 103(c))
(Sec 103(c)(2))
Life Insurance and
No Similar Provision
No Similar Provision
Adds requirement that life insurers may not deny
Travel
coverage due to lawful past or future travel of an
individual but may charge an actuarially based
premium for this coverage.
(Sec. 103(c)(2))

CRS-8
Provision
15 U.S.C. 6701 note
S. 437 (as passed)
H.R. 4314 (as reported)
Insured Shared
Federal share of losses will be 90% for
Reduces federal share of losses to 85%
Creates a sliding scale for the federal share of
Loss
insured losses that exceed the applicable
for 2007.
losses that exceed the applicable insurer
Compensation
insurer deductible.
(Sec. 4)
deductible. Federal share will be:
(Sec. 103(e))
80% for years when the aggregate industry loss is
less than $10,000,000;
85% for years when loss is between $10,000,000
and $20,000,000;
90% for years when loss is between $20,000,000
and $40,000,000; and
95% for years when the loss is above $40,000,000
(Sec. 103 (e)(1)(A)).
Aggregate
$10,000,000,000 for 2002-3,
Raises amount to $17,500,000,000 for
No similar provision
Retention Amount
$12,500,000,000 for 2004,
2006 and $20,000,000,000 for 2007.
Maximum
$15,000,000,000 for 2005
(Sec. 5)
(Sec. 103(6))
Mandatory
If insurer losses are under the aggregate
No Change
Requires the Secretary to collect full recoupment
Recoupment of
retention amount, a mandatory
of federal financial assistance.
Federal Share
recoupment of the federal share of the
(Sec 103(e)(8))
loss will be imposed. If insurer losses are
over the aggregate retention amount, such
recoupment is at the discretion of the
Secretary of the Treasury.
(Sec. 103(7))

CRS-9
Provision
15 U.S.C. 6701 note
S. 437 (as passed)
H.R. 4314 (as reported)
Recoupment
Surcharge is limited to 3% of property-
No Change
No Change
Surcharge
casualty insurance premium and may be
adjusted by the Secretary to take into
account the economic impact of the
surcharge on urban commercial centers,
the differential risk factors related to rural
areas and smaller commercial centers,
and the various exposures to terrorism
risk across lines of insurance.
(Sec. 103(8))
Preservation and
Preserves all existing regulatory authority
No Change
Preserves all existing state authority and
Preemption of
and jurisdiction of the states except that
jurisdiction except that:
Existing State
exclusions for terrorism existing at the
the definition for “Act of Terrorism” in the act
Law
time of the act’s enactment are annulled,
shall preempt any state definitions for purposes of
but can be reinstated by the insurer with
the act, some state laws relating to surplus lines
the agreement of the insured (Sec. 105),
placements are preempted to streamline such
the definition for “Act of Terrorism” in
placements, and states are required to streamline
the act shall preempt any state definitions
their rate and filing system.
for purposes of the act, partial preemption
(Sec 106)
of state rate and form filing requirements
until the end of 2003, and insurers are
required to provide books and records
relevant to the program at the request of
the Secretary notwithstanding any state
laws to the contrary.
(Sec. 106(a))

CRS-10
Provision
15 U.S.C. 6701 note
S. 437 (as passed)
H.R. 4314 (as reported)
Litigation
Litigation arising out of a certified
Adds a section codifying existing
No Change.
Management
terrorist attack must be filed in federal
Treasury regulations.
court and state jurisdiction is preempted.
(Sec. 6)
Any punitive damages awarded in such an
action shall not be included in any insured
damages payable under TRIA.
(Sec. 107)
Studies and
Calls for a study of the need to include
Calls for an analysis and report, not
Calls for studies and reports to be completed by
Reports
group life insurance under TRIA (Sec.
later than September 30, 2006, from the
September 1, 2006 by the Comptroller General on
103 (h)), a study and report of the
President’s Working Group on
(1) the exposure of personal lines of insurance to
potential impact of terrorism on life
Financial Markets, in consultation with
terrorism risk, (2) the risks from NBCR terrorist
insurance and other lines of insurance
various stakeholders, on the longer term
events, and (3) the need for a federal natural
(Sec 103 (g)), and a study assessing the
availability and affordability of
disaster catastrophe program. (Sec. 103 (h-j))
effectiveness of the program, the
terrorism risk insurance including
Requires report from the Commission on
likelihood of the private industry insuring
particularly group life coverage and
Terrorism Risk Insurance (see below) with
against terrorism after the program
coverage against chemical, nuclear,
specific recommendations for a possible future
expiration, and the availability and
biological, and radiological events.
replacement of the program to be completed by
affordability of such insurance.
(Sec. 7)
December 31, 2006.
(Sec. 108(d)).
(Sec. 105)

CRS-11
Provision
15 U.S.C. 6701 note
S. 437 (as passed)
H.R. 4314 (as reported)
Capital Reserve
No Similar Provision
No Similar Provision
Allows the establishment of TRIA capital reserve
Funds
funds (CRF) from premiums paid for terrorism
coverage. These funds are to be held by the
insurer on behalf of the Secretary of the Treasury.
The CRF are to be used first by the Secretary
toward the federal share of future terrorism
losses. Funds used by the Secretary would be
replenished by the mandatory recoupment
surcharge. Any remaining funds not used by the
Secretary may be used by the insurers toward
their terrorism losses. If the program expires,
90% of the unused funds would be returned to the
insurer and 10% would be remitted to the
Treasury. (Sec 103(e)(2) and 103(e)(9)(F))
Commission on
No Similar Provision
No Similar Provision
Establishes an 11-member commission with a
Terrorism Risk
wide range of stakeholders, primarily from the
Insurance
insurance industry. In addition to a report on the
need for, and possible future replacement of the
program, the commission is to make
recommendations regarding possible actions to
encourage private insurance coverage of terrorism
risk and specifically evaluate the TRIA Capital
Reserve Funds. (Sec 105)
Note: H.R. 4314 would strike all of 15 U.S.C. 6701 note (which sets out sections 101-108 of P.L. 107-297) except for Sec. 107 and replaces it with a similar structure, including in
some cases, identical language. The section numbers for H.R. 4314 cited in this side-by-side are, therefore, those that would appear in the Code if the bill were enacted. In contrast,
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S. 467 would simply amend 15 U.S.C. 6701 note. The section numbers for S. 467 cited in this side-by-side are those of that bill itself