The debate will be whether or not there is any need to extend this coverage for a second time.
When the attacks on the World Trade Center and on the Pentagon occurred on 9/11, there was a dramatic change in the demand for terrorism insurance and in the way that risk was being calculated by insurers.
Suddenly, there was a very real threat that massive losses could occur as a results of terrorist attacks.
A law was put into place to make sure that terrorism insurance would remain available and affordable following that devastating day, but as the program approaches its expiry for the second time, divisions inside the Republican Party have made a chance of renewal less assured. The catastrophe that was left behind by the attacks more than a decade ago was a frightening and horrifying wakeup call for insurers, showing them that if they covered major public facilities such as shopping centers, transit hubs, massive office buildings, or sports venues, an attack could bring upon them an “overnight insolvency”, as many have come to call it.
The terrorism insurance program has spread the risk and ensured that coverage has remained available.
Before the program, even an insurance company with solid capital padding could find itself nearly instantly bankrupt if one of their clients experienced a major terrorist attack. It didn’t take long for insurers to rethink the way that they were calculating the risks associated with terrorism, and businesses started to see the cost of that type of coverage heading skyward.
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When Congress saw this problem, they passed a law that would form and hold an insurance market that would cover acts of terror. This required insurers to have to offer this type of coverage. The rates were not set by the government, but if one event’s losses should exceed $100 million, a loss limiting program would kick in that would protect them. This program was first set to expire in 2007, but it was renewed. Now it is, once again, facing expiry at the end of this year.
Despite the fact that there is heavy support in Congress to extend the terrorism insurance program once again, there has been an influential and central group of Republicans who are starting to ask whether or not there continues to be any need for it.