WASHINGTON–Taxpayers and businesses would lose significant protections if there is no renewal of federal supports for insurers after a major terrorism attack, according to a RAND Corp. study released today.

The think tank researchers found that the existing Terrorism Risk Insurance Act program works because it better enables the private sector to cover terrorism risk and businesses to purchase terrorism coverage.

“Overall, TRIA improves the functioning of private insurance markets and ultimately saves the taxpayers money because it transfers risk for the largest terrorist attacks to the government,” said Lloyd Dixon, a RAND economist and study co-author.

“In return, the insurance industry is able to play a larger role in compensating losses caused by smaller, and more likely, attacks,” he noted.

The study, “The Federal Role in Terrorism Insurance,” RAND said is the first to consider the effects of TRIA on federal assistance for uninsured losses in the aftermath of a terrorist attack.

It concludes that taxpayers are better served with the program than without it. Ultimately, the study argues that the payments made by the TRIA backstop would be offset by a reduction in the outlays in government compensation for uninsured losses.

This scenario, the report said, would hold true for a conventional attack resulting in $40 billion in property and workers' compensation losses, and would be even more effective for smaller attacks, which are more likely to occur.

The authors–who include Mr. Dixon, Robert Lempert, Tom LaTourrette and Robert Reville–also argue in favor of expanding the program to cover nuclear, biological, chemical and radiological [NBCR] attacks.

The effectiveness of the programs could be improved even more, they argue, if Congress were to reinforce assurances that insurers will not be held liable for losses beyond the current threshold of $100 billion.

It would also be enhanced, they said, by lowering the deductibles insurers would have to pay out before the program kicks in to encourage more insurers to offer terrorism coverage.

To get the best result from a TRIA program that includes NBCR coverage, “hardening the cap and reducing the deductible are both important,” said Mr. Lempert. “It's a robust strategy that effectively addresses the existing insurer uncertainty over how exposed they are to losses over the cap.”

The House has given its approval to legislation that would extend the TRIA program for an additional 15 years beyond its current expiration date of Jan. 1, 2008 and expand it to include NBCR attacks. Legislation is currently awaiting action in the Senate.

Special Reports /

RAND Study Finds TRIA Needed To Protect Taxpayers

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