JavaScriptThe Congressional Budget Office has released its costestimate for the legislation that has extended the federalTerrorism Risk Insurance Act, predicting it will cost $1.5 billionover the next 10 years.

The CBO, in its analysis of the measure, acknowledged that theactual costs could be far different than what it predicts, due tothe unpredictable nature of terrorism. TRIA, which was extended foronly two years, provides federal support for insurers afterterrorism losses rise above certain levels.

"There is no reliable way to predict how much insured damageterrorists might cause in any specific year," said the agency,which offers objective analysis to Congress on legislation.

However, it explained that the estimate serves as the expectedvalue of payments from the government under the program, or aweighted average of the probabilities of outcomes from zero damagesup to a major terrorist attack.

"The expected value can be thought of as the amount of aninsurance premium that would be necessary to just offset thegovernment's losses from providing this insurance, although firmsdo not pay any premium for the federal assistance offered by TRIA,"the CBO said.

Based on this, the CBO estimated that the TRIA extension willcost the federal government $1.4 billion between 2006 and 2010, and$1.5 billion between 2006 and 2015. The office also estimated thelegislation would increase government receipts by $150 million by2010 and by $720 million between 2006 and 2015.

During the debate on extending TRIA, proponents countered thenotion that the bill was a "bailout" of the insurance industry bynoting it requires the Secretary of the Treasury to recoup anymoney paid out by the federal government through surcharges oninsurance policies.

In crafting its estimates, the CBO took this into account butalso noted the timing of the surcharges would be a factor. In allof its analyses, the CBO makes its projections within a window of10 years into the future.

"The act allows the Secretary to reduce annual charges afterconsidering the effect on taxpayers, the economy, or burdens onsmall and medium-sized businesses," the CBO said. "Therefore, ifannual losses were very high, we expect that the Secretary wouldlimit annual collections by spreading them over many years."

Overall, the CBO said it expects the total surcharges from thetwo-year TRIA extension to total $1.5 billion, but it also expectedit would take 10 years just to collect that total, and that theSecretary would not begin assessing surcharges until two yearsafter a major event.

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