Terrorism Risk and Budget Cuts

By now you’ll have read the headlines that the Obama Administration’s 2011 budget plan includes a proposal to scale back federal support for the terrorism risk insurance program (see pg. 90). Its justification is that this would “encourage the private sector to better mitigate terrorism risk through other means, such as developing alternative reinsurance options and building safer buildings.” The proposal projects savings of $249 million in the course of the next 10 years as a result of the reduction in federal support. It comes just eight years after Congress established the terrorism risk insurance program by passing the Terrorism Risk Insurance Act of 2002 (TRIA). The program – which is triggered in the event of a major terrorist attack – was renewed for two years in 2005 and again for another seven years to 2014 in 2007. A couple of articles in Business Insurance here and here quote industry observers saying that attempts to modify the program would have a detrimental effect on the availability and affordability of terrorism insurance – problems that the program was designed to end. Indeed, a 2009 study by Aon estimated that some 70 percent to 80 percent of the commercial property insurance market would revert to absolute exclusions for terrorism, if TRIA is changed. Check out further I.I.I. information on terrorism risk and insurance.

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