Managing Economic Risk in the Age of Terror

The attacks of September 11 cost al Qaeda roughly $500,000 to plan and execute, but created up to $500 billion in economic impact, including an estimated $90 billion in the New York metropolitan area. The insurance industry paid more than $30 billion in claims for a risk it had not anticipated within the United States before 2001. In the aftermath, commercial terrorism risk insurance for businesses, particularly within major cities presumed to be potential targets for future attacks, was expensive, and was difficult if not impossible to obtain. This uncertainty regarding the availability of financial protection from a future attack sent ripple effects across the U.S. economy. In response, Congress in 2002 passed the Terrorism Risk Insurance Act or TRIA which provided government backing, subject to specific conditions that have changed over time, for the private commercial insurance market. Some view the law as a necessary shared responsibility between government and the private sector, while others see it as an inappropriate government intervention that has inhibited the market from effectively responding to an evolving risk.

Congress is now considering renewal of the Terrorism Risk Insurance Act and the Center for American Progress has invited economic and security experts, together with corporate representatives, to consider what Congress should do now and how to protect the U.S. economy, including large and small business sectors, well into the future. What is the ongoing risk of terrorism to the United States? How does terrorism affect companies of various sizes and in different parts of the country? If TRIA should be renewed, how should it be structured to provide the maximum protection to the U.S. economy? Should the American taxpayers be compensated for the protection the government provides the insurance industry? Does government belong in the insurance business and if so for how long? What is the long-term solution?