Government estimates its cost under terrorism insurance extension

The Congressional Budget Office is projecting a government cost of $1.5 billion through the next 10 years under the legislation extending the Terrorism Risk Insurance Act of 2005 (S. 467).

However, despite weighing averages reflecting the probabilities of various outcomes, future attacks still possess an inherent unpredictability and costs could vary greatly from the estimate, according to CBO. “There is no reliable way to predict how much damage might be caused in any specific year,” the agency added.

S.467 extended the federal backstop for terrorism losses until the end of 2007. For government assistance under the extended TRIA to be triggered, the attack must be committed by a foreign interest and cause damages of at least $50 million. In 2007, the damage requirement swells to $100 million. Coverage excludes commercial auto, burglary, surety, professional liability, and farm owners’ multiple peril. Policies may not cover losses from events involving nuclear, biological, or chemical materials. Experts say losses from the excluded lines are unlikely to significantly affect average annual losses. Losses similar in scale to those sustained on Sept. 11, 2001, (an estimated $20 billion) are likely to occur very rarely. The estimated increased governmental receipts to $150 million throughout 2006-2010 and $720 million over the next 10 years.

Between 2006 and 2010, the TRIA extension will cost the federal government $1.4 billion, and between 2006 and 2015, an estimated $1.5 billion, according to CBO.

The Department of Treasury has the ability to recoup costs through surcharges. CBO estimates that the government might eventually collect total surcharges of $1.6 billion.

Topics Catastrophe Natural Disasters