Terrorism Insurance: Implementation of the Terrorism Risk Insurance Act of 2002
Published: 2004-04-23T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: After the terrorist attacks of September 11, 2001, insurance coverage for terrorism largely disappeared. Congress passed the Terrorism Risk Insurance Act (TRIA) in 2002 to help commercial property-casualty policyholders obtain terrorism insurance and give the insurance industry time to develop mechanisms to provide such insurance after the act expires on December 31, 2005. Under TRIA, the Department of Treasury caps insurer liability and would process claims and reimburse insurers for a large share of losses from terrorist acts that Treasury certified as meeting certain criteria. As Treasury and industry participants have operated under TRIA for more than a year, GAO was asked to describe (1) their progress in implementing the act and (2) changes in the terrorism insurance market under TRIA.
section_title: What GAO Found
paragraphs: Treasury and industry participants have made significant progress in implementing TRIA during its first year, but Treasury has important work to complete in order to comply with its responsibilities under the act. For example, Treasury has issued regulations to define program requirements, created and fully staffed the Terrorism Risk Insurance Program office, and begun data collection efforts in support of mandated studies. Insurers also have adjusted their operations and policies to comply with TRIA. However, insurers have expressed concerns that Treasury has not yet decided whether to extend through 2005 the requirement that insurers offer terrorism coverage on terms that do not differ materially from other coverage. Although the act gives Treasury until September 1, 2004, to decide this issue, a more timely decision is needed to avoid hindering underwriting and pricing decisions for policies that are issued or renewed through 2005. In addition, Treasury has not fully established a claims processing and payment structure. Insurers are concerned that a delayed payment of claims by Treasury, whether because of the length of time taken to certify that an act of terrorism met the requirements for federal reimbursement or from inadequate claims processing capability, might seriously impact insurer cash flows or, in certain circumstances, insurer solvency. It appears that Congress's first objective in creating TRIA--to ensure that business activity did not materially suffer from a lack of available terrorism insurance--has been largely achieved. Since TRIA was enacted in November 2002, terrorism insurance has been generally available to businesses. But most commercial policyholders are not buying the coverage. According to insurance industry experts, purchases have been higher in areas considered to be at high risk of another terrorist attack. However, many policyholders with businesses or properties not located in perceived high-risk locations are not buying coverage because they view any price for terrorism insurance as high relative to their perceived risk exposure. Further, those who have bought terrorism insurance remain exposed to significant perils. Insurers have broadened long-standing policy exclusions of nuclear, biological, and chemical events. Congress's second objective--to give private industry a transitional period during which it could begin pricing terrorism insurance and develop ways to cover losses after TRIA expired--has not yet been achieved. Industry sources indicated that under TRIA, insurance market participants have made no progress to date toward the development of reliable methods for pricing terrorism risks and made little movement toward developing any mechanism that would enable insurers to provide terrorism insurance to businesses without government involvement.

section_title: Letter
paragraphs: The terrorist attacks of September 11, 2001, drastically changed the way  insurers viewed the risk of terrorism. An industry that had considered the  risk of terrorism so low that it did not identify or price terrorism risk  separate from property and casualty coverage will pay approximately $40  billion for losses arising from September 11, according to industry experts.   In the aftermath, we reported that insurance coverage was disappearing for  terrorist events, particularly for large businesses and those perceived to be  at some risk.  As contracts between reinsurers and insurers came up for  renewal, reinsurers excluded terrorism from coverage.  Without  reinsurance, insurers retained greater levels of risks than they could  responsibly carry, and their reaction was to exclude these risks from  commercial policies as they were renewed.
In light of concerns that the lack of terrorism insurance could have  significant effects on the economy or that, in the event of another terrorist  attack, the economic costs would fall directly on the victims and the  government, Congress passed the Terrorism Risk Insurance Act of 2002  (TRIA), which took effect on November 26, 2002.  Under TRIA, the  Department of the Treasury (Treasury) would reimburse insurers for a  large share of the losses associated with certain acts of foreign terrorism  that occur during the 3-year term of the act.  The purpose of TRIA is  twofold: to make terrorism insurance widely available and affordable to  commercial policyholders for the duration of the act and to provide a  transitional period during which insurance market participants could find  ways to price terrorism insurance and develop market-driven resources  and mechanisms that would offer terrorism insurance after TRIA expires  on December 31, 2005.
TRIA requires that all insurers selling commercial lines of property and  casualty insurance “make available” coverage for certain terrorist events in  the first 2 years of the program.  TRIA defines “make available” to mean  that the coverage must be offered for insured losses arising from terrorist  events and that coverage not differ materially from the terms, amounts, and  limitations applicable to coverage for losses arising from other types of  events. However, TRIA gives Treasury the option of determining whether  the “make available” requirement should be extended through 2005, the  third year of the act, and gives the agency until September 1, 2004, to do so.   Also, not all acts of terrorism will trigger reimbursements under TRIA: the  Secretary of the Treasury must “certify” that an act of terrorism meets the  criteria specified in TRIA.  For example, “an individual or individuals  acting on behalf of any foreign person or foreign interest” must commit the  act. After an event is certified, TRIA authorizes Treasury to reimburse  insurers for most of the insured losses, after they have paid specified  deductible amounts. Moreover, TRIA authorizes Treasury to administer the  Terrorism Risk Insurance Program (TRIP) office, through which Treasury  will administer TRIA provisions and would pay claims. TRIA also mandates  various studies and data collection efforts and contains provisions  affecting the National Association of Insurance Commissioners (NAIC).
Treasury and industry participants have operated under TRIA for more  than a year.  Consistent with your request, in this report we describe (1) the  progress made by Treasury and insurance industry participants in  implementing TRIA provisions and (2) changes in the market for terrorism  insurance coverage under TRIA.
To address these objectives, we reviewed and analyzed Treasury’s final and  proposed regulations in the Federal Register, public comments that were  submitted about the regulations, relevant information concerning state  legislation, and publicly available and proprietary industry data and studies  on the terrorism insurance market.  We interviewed officials at Treasury,  NAIC, and state insurance regulators from six states with high insurance  sales volumes.  We also interviewed representatives of insurance  companies, reinsurance companies, brokers for insurance and reinsurance  companies, industry associations, property owners and developers, and  insurance filing services and credit rating agencies.  In our discussions  with these organizations, we endeavored to gain an understanding of their  experience in implementing TRIA requirements, obtain their views on the  effects of TRIA on the terrorism insurance market, and identify  developments within the industry to address terrorism risks after TRIA  expires.
We conducted our work in Chicago, New York City, and Washington, D.C.,  from January 2003 through April 2004 in accordance with generally  accepted government auditing standards.
subsections: section_title: Background
paragraphs: Under TRIA, Treasury is responsible for reimbursing insurers for a portion  of terrorism losses under certain conditions.  Payments are triggered when  (1) the Secretary of the Treasury certifies that terrorists acting on behalf of  foreign interests have carried out an act of terrorism and (2) aggregate  insured losses for commercial property and casualty damages exceed  $5,000,000 for a single event.   TRIA specifies that an insurer is responsible  (i.e., will not be reimbursed) for the first dollars of its insured losses—its  deductible amount.  TRIA sets the deductible amount for each insurer  equal to a percentage of its direct earned premiums for the previous year.   Beyond the deductible, insurers also are responsible for paying a  percentage of insured losses. Specifically, TRIA structures pay-out  provisions so that the federal government shares the payment of insured  losses with insurers at a 9:1 ratio—the federal government pays 90 percent  of insured losses and insurers pay 10 percent—until aggregate insured  losses from all insurers reach $100 billion in a calendar year (see fig. 1).
Thus, under TRIA’s formula for sharing losses, insurers are reimbursed for  portions of the claims they have paid to policyholders. Furthermore, TRIA  then releases insurers who have paid their deductibles from any further  liability for losses that exceed aggregate insured losses of $100 billion in  any one year.  Congress is charged with determining how losses in excess  of $100 billion will be paid.
TRIA also contains provisions and a formula requiring Treasury to recoup  part of the federal share if the aggregate sum of all insurers’ deductibles  and 10 percent share is less than the amount prescribed in the act—the  “insurance marketplace aggregate retention amount.”  TRIA also gives the  Secretary of the Treasury discretion to recoup more of the federal payment if deemed appropriate.  Commercial property-casualty policyholders  would pay for the recoupment through a surcharge on premiums for all the  property-casualty policies in force after Treasury established the surcharge  amount; the insurers would collect the surcharge.  TRIA limits the  surcharge to a maximum of 3 percent of annual premiums, to be assessed  for as many years as necessary to recoup the mandatory amount.  TRIA  also gives the Secretary of the Treasury discretion to reduce the annual  surcharge in consideration of various factors such as the economic impact  on urban centers.  However, if Treasury makes such adjustments, it has to  extend the surcharges for additional years to collect the remainder of the  recoupment.
Treasury is funding TRIP operations with “no-year money” under a TRIA  provision that gives Treasury authority to utilize funds necessary to set up  and run the program.  The TRIP office had a budget of $8.97 million for  fiscal year 2003 (of which TRIP spent $4 million), $9 million for fiscal year  2004, and a projected budget of $10.56 million for fiscal year 2005—a total  of $28.53 million over 3 years.  The funding levels incorporate the estimated  costs of running a claims-processing operation in the aftermath of a  terrorist event: $5 million in fiscal years 2003 and 2004 and $6.5 million in  fiscal year 2005, representing about 55 to 60 percent of the budget for each  fiscal year. If no certified terrorist event occurred, the claims-processing  function would be maintained at a standby level, reducing the projected  costs to $1.2 million annually, or about 23 percent of the office’s budget in  each fiscal year. Any funds ultimately used to pay the federal share after a  certified terrorist event would be in addition to these budgeted amounts.
section_title: Treasury and Industry Participants Have Made Progress in Implementing TRIA, but Treasury Has Not Yet Achieved Key Goals
paragraphs: More than a year after TRIA’s enactment, Treasury and insurance industry  participants have made progress in implementing and complying with its  provisions, but Treasury has yet to fully implement the 3-year program.  Treasury has issued regulations (final rules) to guide insurance market  participants, fully staffed the TRIP office, and started collecting data and  performing studies mandated by TRIA.  However, Treasury has yet to make  the claims payment function operational and decide whether to extend the  “make available” requirement through 2005. In its advisory role, NAIC has  effectively assisted Treasury in drafting guidance and regulations and  planning mandated studies.  Insurance companies are also generally  complying with TRIA requirements by making changes to their operations,  such as revising premiums and policy terms.  However, insurers do not yet  know whether they will be required to “make available” terrorism  insurance for policies issued or renewed in 2005.  Additionally, they have  voiced concerns about the time Treasury might take to certify an act of  terrorism as eligible for reimbursement under TRIA and process and pay  claims after an act was certified.
subsections: section_title: Treasury Has Issued Some Regulations, Staffed the TRIP Office, and Begun Studies and Data Collection
paragraphs: To implement TRIA and make TRIP functional, Treasury has taken  numerous regulatory and administrative actions, which encompass  rulemaking, creating a new program office, and collecting and analyzing  data. To date, Treasury has issued three final rules and one proposed rule,  which provide uniform definitions of TRIA terms, explain disclosure  requirements, determine which insurers are subject to TRIA, and establish  a basic claims-paying process. Treasury has also created and staffed the  TRIP office, which will oversee claims processing, payment, and auditing.   Finally, Treasury has completed a TRIA-mandated assessment and is  working on other reporting and data collection mandates.
subsections: section_title: To Be Ready for Possible Terrorist Events, Treasury Quickly Issued Interim Guidance and Interim Final Rules
paragraphs: After TRIA became effective, Treasury officials said they moved quickly to  provide immediate guidance to the insurance industry on time-sensitive  requirements. Because the process required to issue final regulations  would take a few months, Treasury published four sets of interim guidance  in the Federal Register between December 2002 and March 2003.  The first  three sets of interim guidance were in a question-and-answer format to  provide quick answers to specific questions, and the fourth interim  guidance contained regulatory language.  The purpose of the interim  guidance was to help insurance companies and other entities determine if  they were subject to TRIA and to help insurers quickly modify forms and  policies and adjust operations by providing definitions and program  parameters. Interim guidance in December 2002 covered requirements for  disclosure (e.g., notification to policyholders), the “make available”  provision, and which lines of property-casualty insurance were subject to  TRIA. For example, the guidance explained that under TRIA insurers are  required to send notices to their policyholders containing information  about the availability and cost of terrorism insurance and the 90 percent  federal share.  Subsequent guidance provided information on topics such  as how certain insurers should allocate direct earned premiums (which are  used to determine what their deductibles would be), alternative methods  for complying with TRIA’s disclosure requirement, and the application of  TRIA to non-U.S. insurers.  The interim guidance remained in force while  Treasury drafted final rules.
In addition to interim guidance, Treasury also published two interim final  rules and a proposed rule. The first interim final rule laid the foundation of  the program and key definitions for terms used in TRIA.  The second  interim final rule covered disclosure and “make available” requirements.   The proposed rule addressed “state residual market insurance entities” and  “state workers compensation funds”—two types of state-created entities  that will be discussed below.   The interim final rules had the force of law  until they were superseded by final rules.  As a result, Treasury officials  stated, had a terrorist act occurred before final rules took effect, a  regulatory structure would have been in place to allow a faster response  than would otherwise have been possible.
section_title: Treasury Also Has Published Final Rules
paragraphs: As of March 1, 2004, Treasury’s interim guidance, interim final rules, and  proposed rule had been superseded by three final rules. The first final rule  was published in the Federal Register on July 11, 2003, and addressed basic  definitions of words used in TRIA, such as “insurer” and “property and  casualty insurance.”  Treasury officials said they completed this  regulation first to provide a foundation for subsequent regulations, which  would use these terms frequently.  Although TRIA provided definitions for  these terms, TRIA also specified that state insurance regulations be  preserved where possible. According to Treasury officials, Treasury thus  devoted much effort to ensure that TRIA’s definitions of property-casualty  insurance terms would be consistently applied across jurisdictions—a  difficult task because Treasury did not have existing uniform or consistent  definitions of the terms used in TRIA.  For example, the term “commercial  property-casualty insurance” includes slightly different lines of insurance  in each state’s definition.  Treasury decided to use information that insurers  submitted in annual statements to NAIC as the basis for defining  property-casualty insurance.
On October 17, 2003, Treasury issued its second final rule on disclosure and  “make available” requirements for insurers (see fig. 2).  These  time-sensitive requirements, which insurers had to meet to be eligible to  receive federal reimbursement for terrorist losses, had originally been  spelled out in the interim final rule.  Among other things, the rule stated  that insurers that had used NAIC’s model disclosure forms to notify their  policyholders about TRIA and terrorism insurance premiums had complied  with TRIA disclosure requirements. The rule also clarified that insurers did  not have to make available coverage for certain risks if the insurer’s state  regulator permitted the exclusion of those risks and the insurer had made  the same exclusion from coverage on all other types of policies. For  example, Treasury’s explanations in the rule specifically used policy  exclusions for NBC events to illustrate this point. (We discuss these  exclusions in more detail later in this report.)
The third final rule, also issued on October 17, 2003, instructed two kinds of  insurers that are typically created by state governments—“state residual  market insurance entities” and “state workers’ compensation funds”—on  how TRIA provisions apply to them (see fig. 2).  States establish residual  market insurance entities to assume risks that are generally unacceptable  to the normal insurance market, and state workers’ compensation funds  are state funds established to provide workers injured on the job with  guaranteed benefits.  The other insurance companies operating in the state  usually fund these state-created entities.  The rule explained how a state  residual market insurance entity and its insurance company members  should allocate direct earned premiums among themselves for the  purposes of calculating deductibles under TRIA, because the size of the  TRIA deductible is determined by the size of a company’s direct earned  premium.  Treasury crafted provisions specific to state residual market  insurance entities because, depending on the particular state law, both the  premiums and the profits and losses of these entities may be shared with  their insurance company members. Absent these specific provisions, in  those cases where premiums were shared the premiums would be double  counted, resulting in an unfair increase in the deductible of the insurance  company.  The rule also applied TRIA’s disclosure provisions to both types  of state-created entities.
Treasury also issued a proposed rule on December 1, 2003, which would  establish the first stages of a basic claims-paying process (see fig. 2).  According to Treasury officials, this proposed regulation sets up an initial  framework for the claims process, including instructions to insurers to  notify Treasury when they have reached 50 percent of their deductible.   This notification provides Treasury with advance notice of possible  impending claims. The proposed rule also contains, among other things,  requirements for insurers to receive federal reimbursements and provides  associated recordkeeping requirements.  Treasury intends to supplement  the proposed rule with additional, separate guidance that will provide  detailed operating procedures for claims filing and processing.  According  to the officials, Treasury took this phased approach to get the basic rules  out to insurers in case a terrorist event occurred.
Finally, a Treasury official said that Treasury staff drafted another rule,  which is currently under review by the Office of Management and Budget  (OMB).  The draft, which will be published and available for public  comment as a proposed rule after OMB approves it, addresses litigation  management (see fig. 2).  The draft proposed rule would apply a TRIA  provision that establishes that suits arising from certified terrorist events  are federal causes of action and establishes litigation management  procedures.
Writing the regulations has been a lengthy and difficult process, not only  because of the multiple procedural review requirements of federal  rulemaking, but also because TRIA established that state insurance  regulations should be preserved where possible.  For example, as  previously discussed, creating definitions in accord with the statutory  definitions of more than 50 jurisdictions (the states, District of Columbia,  Puerto Rico, and U.S. territories) required extensive discussions among the  state regulators, which in turn required additional time to plan and execute.
section_title: Treasury Has Fully Staffed the TRIP Office
paragraphs: In addition to developing regulations to implement TRIA, Treasury fully  staffed the TRIP office by September 2003.  The TRIP office develops and  oversees the operational aspects of TRIA, which encompass claims  management—processing, review, and payment—and auditing functions.  The TRIP staff consists of an executive director, a senior advisor, two  attorneys, two policy analysts, and two administrative staff.  Since  becoming operational, TRIP staff have drafted regulations and performed  other tasks necessary to make the program functional. For example, staff  reviewed and incorporated appropriate public comments to proposed  regulations and visited reinsurers to learn more about paying claims  submitted by insurers as a prelude to developing criteria for claims  payment and processing.  Staff also will be issuing contracts for vendors to  supply these claims services. (We discuss the claims processing function in  more detail later in this report.)  Additionally, TRIP staff have ongoing work  such as issuing interpretive letters in response to questions submitted by  the public and participating in conferences across the United States to  inform regulators, industry participants, and the public about TRIA  provisions.
subsections: section_title: Treasury Has Begun Mandated Data Collection and Analysis
paragraphs: Treasury has completed one TRIA mandate for data collection and a study  and has begun work on others.  Specifically, TRIA mandated that Treasury  provide information to Congress in four areas: (1) the effects of terrorism  on the availability of group life insurance, (2) the effects of terrorism on the  availability of life and other lines of insurance, (3) annual data on premium  rates, and (4) the effectiveness of TRIA  (see table 1).  Treasury’s Office of  Economic Policy is responsible for organizing and analyzing information  associated with the mandated studies and assessments.
Pursuant to TRIA section 103(h)(1), Treasury completed an assessment of  the availability of group life insurance and reinsurance for insurers issuing  group life policies. Treasury concluded that the terrorism threat had not  reduced the availability of group life insurance, but had reduced the  availability of reinsurance, finding a general lack of catastrophic  reinsurance for group life coverage. After completing the assessment,  Treasury issued a press release in August 2003 stating that it had decided  not to make group life insurance subject to TRIA because it found that  insurers had continued to provide group life coverage. According to life  insurance experts, life insurers have done so to maintain customer  relations that would be difficult to reestablish if the coverage were  discontinued. Additionally, life insurance experts noted that business from  other lines of insurance would be lost if insurers were to discontinue group  life, which is typically sold as part of a package with disability and medical  coverage.
Treasury has not yet completed a mandated study on the effects of  terrorism on the availability of life and other lines of insurance. The study  was to have been completed by August 2003, 9 months after TRIA was  enacted.  As of March 1, 2004, according to Treasury officials, the report  based on this study was in draft form. Because internal Treasury reviews of  the draft have not been completed, the draft report has not yet been made  public.
Pursuant to TRIA sections 104(f)(1) and 108(d)(1), Treasury officials said  they began collecting data on annual premium rates and working on the  study that would assess the effectiveness of TRIA and project the  availability and affordability of terrorism insurance for certain groups of  policyholders after TRIA expires. Treasury hired a private firm to collect  premium data and other information in surveys from policyholders,  insurers, and reinsurers.  In the surveys, policyholders are asked to provide  information such as business size, geographic locations of insured  properties, premium data for TRIA-related terrorism insurance, and risk  management measures used.  Insurers are asked about the types of  insurance sold that contain TRIA coverage, number of policies sold,  number of policies sold with TRIA coverage, and methods used for  estimating risks.  Reinsurers will be asked for similar information. The  data collected from the survey will provide information for the data  collection efforts on annual premium rates and also provide the basis for  assessing the effectiveness of TRIA.  According to Treasury officials,  Treasury began sending surveys to a nationally representative sample of  25,000 policyholders in November 2003 and approximately 700 insurers and  insurance groups in January 2004.  The first surveys will collect data for  2003, as well as 2002, to establish a baseline for analysis and reporting.  The  second and third surveys will be sent in 2004 and 2005.
section_title: Treasury Has Tasks to Complete before TRIA Can Be Fully Implemented
paragraphs: Before TRIA can be fully implemented, Treasury has to make certain  decisions, develop additional regulations, and make certain TRIP functions  operational.  More specifically, TRIA gave Treasury until September 1, 2004,  to decide if the requirement that insurers offer terrorism coverage on terms  that do not differ materially from other coverage should be extended for  policies issued or renewed in 2005, the third and final year of the program.   Treasury did issue a press release on December 23, 2003, clarifying that the  “make available” requirement for annual policies issued or renewed in 2004  extends until the policy expiration date, even though the coverage period  extends into 2005.  As of March 1, 2004, Treasury officials said they had not  made a decision on the “make available” extension for policies that will be  issued or renewed in 2005.  The officials indicated that they would be in a  better position to make this decision after they obtained enough  preliminary data from their surveys, which they anticipate receiving in  spring 2004.  The survey data are expected to provide an analytical  framework for Treasury’s decisions by collecting information on factors  such as premium rates, geographic locations of covered property, policy  limits and deductibles, and the extent to which certain terrorism risks are  covered.
Treasury has yet to develop all the regulations necessary to carry out TRIA  provisions and make operational certain functions relating to claims  administration, auditing, and oversight.  While the implementation of some  of these provisions and functions was covered by the proposed rule (see  fig. 2), Treasury has not drafted final rules to cover the latter stages of the  claims process, which would encompass resolving disputed claims with  insurance companies, dealing with insurers that become insolvent,  adjusting claims payments for over- and underpayments (netting), and  handling claims submitted by insurers after aggregate insured losses have  exceeded the $100 billion cap.  Treasury officials said they plan to complete  these regulations in the spring and summer of 2004, after they have fully  addressed the claims-paying process.  Treasury also has yet to write  regulations addressing recoupment and surcharges and the collection of  civil monetary penalties in cases of noncompliance or fraud.  Treasury also  plans to assess the need to develop additional regulations or refine past  regulations on captive insurers and self-funded pools—types of  self-insurers.  Additionally, Treasury has not yet developed processes for  auditing claims payments to insurers.  However, Treasury plans to issue a  request for proposal (RFP) for a postclaims auditing contractor in the third  quarter of fiscal year 2004.  The contractor will review claims and conduct  field audits of insurers after an event to ensure that underlying documents  support claims submitted to Treasury.  Treasury officials anticipate  awarding a contract in the fourth quarter of fiscal year 2004.  Moreover,  Treasury plans to develop guidance encompassing business procedures  and audit parameters that will trigger reviews and audits. Treasury officials  also said that other ongoing and completed work associated with the  claims-processing function lays the foundation for the claims auditing  process. Finally, a Treasury official estimated that by the end of fiscal year  2004, Treasury would implement all of the processes that would have to be  in place before an event occurred.  After fiscal year 2004, Treasury plans to  develop procedures for requirements that will not need to be in place until  after an event has occurred—such as recoupment and surcharge.
Lastly, a key TRIP function—the actual processing and payment of  claims—is not yet operational. From the beginning of its planning efforts,  Treasury had envisioned that contractors would handle TRIA claims  processing in the aftermath of a terrorist attack. According to TRIP  officials, after incorporating a basic regulatory framework, one of the first  priorities for the TRIP office was to write and issue a RFP to procure  contractors to perform claims services.  Treasury issued an RFP for  claims-processing and payment services in December 2003, but had not  hired any contractors as of March 1, 2004.  Treasury attempted to  accelerate the procurement process by reducing the number of days  allowed for bidders to respond to the RFP and dedicating all TRIP staff to  reviewing the proposals. However, the number of proposals received has  pushed the contract award date beyond original estimates of February  2004. Treasury officials now believe they will award a contract by April  2004. Treasury has also continued to develop a proposed rule, related  guidance, claims management requirements for the claims contractor and  processes necessary to manage the claims function, and worked with  industry to devise standard forms.  Moreover, once the claims processing  contract is awarded, Treasury plans to establish electronic interfaces  between itself and the contractor, test the contractor’s systems and  processes by using “dummy” claims submitted by insurers, and establish an  electronic fund transferring process to speed reimbursement of insured  losses.
section_title: NAIC Is Fulfilling Its Advisory Role under TRIA
paragraphs: NAIC is working with Treasury on various aspects of implementing TRIA,  effectively fulfilling its advisory role.  In January 2003, NAIC formed the  Terrorism Insurance Implementation Working Group to work with  Treasury.  The working group consists of representatives from nine states  and the District of Columbia, who are led by a state insurance  commissioner, and has provided input to Treasury on an ongoing basis.  In  particular, the working group assisted Treasury each time it issued  guidance and rules, according to Treasury and NAIC officials. For example,  Treasury officials reported that NAIC aided them in writing a detailed  definition for “insurer” for its first interim final rule published in the  Federal Register in February 2003.  NAIC coordinated meetings between  Treasury and state insurance regulators to align or address differences in  definitions that exist across the 50 states, the District of Columbia, Puerto  Rico, and three U.S. territories.  As noted previously, TRIA directed that  state regulations be preserved when possible; thus, the definitions had to  be highly consistent with state regulations. The NAIC official also  explained that NAIC tried to ensure that the language of its suggestions to  Treasury, when implemented, would be enforceable by all state insurance  regulators.
NAIC also aided Treasury in outreach and education efforts.  In the weeks  before TRIA was enacted, NAIC issued press releases informing insurers of  the impending act and urging them to prepare for its new requirements.   Moreover, NAIC applied its expertise in developing a model bulletin,  regulations, and forms to help state regulators and insurers expeditiously  carry out TRIA responsibilities.  For example, NAIC issued a model  bulletin, which state regulators could use to communicate key terms and  definitions and explain the application of TRIA to losses resulting from  foreign sources versus domestic sources of terrorism. NAIC made the  model bulletin available on its Web site immediately upon the enactment of  TRIA.  NAIC also developed model disclosure forms for insurers to use  when informing their policyholders about the availability of terrorism  insurance under TRIA.  As discussed previously, TRIA requires insurers to  send disclosure notices to their policyholders about the availability and  cost of terrorism insurance and the 90 percent federal share.
section_title: Insurance Companies Made Changes to Their Operations to Comply with TRIA
paragraphs: In order to comply with TRIA requirements, primarily those concerning  disclosure to policyholders, insurers generally have made changes to their  operations. According to an official of a large insurance company, to  develop and disseminate information about TRIA terms and coverage,  insurers have changed policies, software, and forms; trained staff; revised  actuarial information and underwriting procedures; and expanded  outreach and marketing.  For example, the insurers had to send revised  premium information in disclosure notices to hundreds of thousands of  policyholders as well as submit thousands of new premium rates and the  associated policy language to state regulators for approval.  If the insurers  had failed to make these disclosures, they would have lost their eligibility  for reimbursement under TRIA.
While the disclosure requirements required many revisions to insurer  operations, the insurers did have the benefit of a “safe harbor.”   As  previously discussed, Treasury determined that use of NAIC’s model  disclosure form constituted compliance with TRIA’s disclosure  requirements.  Moreover, insurers using NAIC’s model form could get  coverage decisions from their policyholders without first investing time in  devising a disclosure notice—a time-consuming process that would include  review by an insurer’s legal staff for compliance with TRIA requirements.   Given that TRIA invalidated terrorism exclusions as soon as it was enacted,  insurers were exposed to uncompensated risks (i.e., the potential for  having to pay for all the losses in a terrorism event without having received  a premium) until their existing policyholders received written disclosures,  accepted the coverage, or rejected it.
section_title: Insurers Are Concerned That the Pace of TRIA Implementation Could Affect Business Planning, Reduce Cash Flow, or Result in Insolvency
paragraphs: Insurers have expressed a number of concerns about Treasury’s  implementation of TRIA.  Insurers are concerned that Treasury has not  already made a decision about extending the “make available” requirement  through 2005; they are also concerned about the potential length of time it  may take for the Secretary of the Treasury to certify a terrorist event,  potential inefficiencies and time lags in processing and paying claims once  an event is certified, and the issue of TRIA expiration.  TRIA gives Treasury  until September 2004 to make a decision about whether to require insurers  to make terrorism insurance available—on terms that do not differ  materially from that of other coverage—for policies issued or renewed in  2005, the third year of the program.  Insurers have stated that this deadline  is too late.  Insurers need to make underwriting, price, and coverage  decisions for these policies in mid-2004.  However, Treasury has yet to  make a decision about the “make available” requirement for policies issued  or renewed in 2005.
If Treasury did not extend the requirements through 2005, insurers would  have to evaluate and possibly revise prices and terms for newly issued and  renewing policies, according to an insurance official.  Moreover, regulatory  approval for these changes might take longer than the time it took to  approve the changes to policies and procedures that insurers initially made  to implement TRIA. TRIA allowed for federal preemption of the states’  authority to approve insurance policy rates and conditions, but the  preemption expired on December 31, 2003—returning insurers to the  previous regulatory scheme in which they must obtain regulatory approvals  from each state that has these requirements to sell insurance.  Thus, the  timing of Treasury’s announcement on the extension may cost both  companies and policyholders money if policy changes cannot be  implemented in time to issue or renew policies.
Insurers also are concerned that a delay in Treasury’s certification of a  terrorist event as eligible for federal reimbursement, in conjunction with  state regulations requiring prompt payment of claims, could create cash  flow problems or even lead to insolvency for some insurers.  While TRIA  does not specify the length of time available for determining whether an  event meets the criteria for certification, insurers are bound by law and  regulations in most states to pay claims in a timely manner, which means  they may have to pay policyholder claims in full without waiting for  Treasury to certify an event, said an NAIC official.
Because of this requirement to pay claims in a timely manner, insurers face  potentially negative financial consequences under two possible scenarios:   if Treasury made the certification decision after an extended period of time  or if Treasury ultimately made the decision not to certify an event after an  extended period of time.
Under the first scenario, insurance industry observers have said that they  could potentially experience a cash flow problem while awaiting a  certification decision, and thus for reimbursement of the 90 percent federal  share, because they have already paid 100 percent of the claimed losses.  Insurers brought up the anthrax letter incidents as an example of their  concerns about certification time frames, because law enforcement  officials still have not identified the source, whether foreign or domestic,  more than 2 years after the incidents. Under the second scenario, insurers  could become insolvent if Treasury decided not to certify an event (i.e.,  decided the act was not the work of terrorists working on behalf of foreign  interests) after insurers had already paid policyholder claims. Unless the  policyholder had paid for coverage of all terrorist events—including those  caused by domestic terrorists, which would be excluded from  reimbursement under TRIA—insurers would have paid for losses for which  they had collected no premium.  Insurers would have no way to recover  payments already made to policyholders for losses associated with the  event other than to seek remedies through the courts, an NAIC official  explained.
Treasury has responded that the certification process is complex and  possibly would require extensive investigation and correlation of  information from many sources, most not under Treasury’s control.  As a  result, although Treasury officials said that they understood the difficulties  facing insurers, they also felt that placing specific time limits on those  making the certification decision would impose unworkable constraints on  an already complex and difficult process.  Treasury has taken some steps to  facilitate the certification process by communicating with the Department  of Justice and the Department of State.  Specifically, Treasury has identified  contacts within these agencies and has met with relevant individuals to  discuss their roles in the certification process.
Insurers are also concerned that the length of time Treasury may take to  process and pay claims could impact an insurer’s cash flow.  Treasury’s  capacity to pay claims relatively quickly will determine how fast insurers  receive the 90 percent federal share.  According to an insurance company  official, because of the long-standing relationships and familiarity that  insurers have with reinsurers, it is often possible to receive speedy  payment for losses.  Insurers are concerned that this might not be  possible with the TRIP office, especially since the claims-paying  mechanism has yet to be created. Treasury officials explained that without  a close preexisting relationship like that between an insurer and reinsurer,  some procedures may, of necessity, differ.  As noted previously, Treasury  published a proposed rule addressing the claims-paying process.  However,  the proposed rule does not specify the maximum number of days in which  Treasury must pay claims.  According to a Treasury official, establishing a  time frame for payment would not be appropriate.  However, to address  insurer concerns about prompt payment, Treasury has taken into  consideration input received from the insurance industry and has been  developing mechanisms to expedite the review, approval, and payment of  claims.  Treasury has also decided to use electronic fund transfers to  insurer’s accounts to speed reimbursement to insurers with approved  claims.  Treasury officials said such a mechanism should reduce the  potential for insurers to experience cash flow problems by eliminating the  wait for Treasury to issue checks.
Finally, insurance industry officials are worried that uncertainty about  TRIA’s extension past 2005 will impede their business and planning  processes.  Although TRIA does not contain any specific extension  provisions, Treasury officials have used forums such as NAIC and industry  meetings to state that TRIA was designed to provide a program of three  years duration.  However, industry participants continue to believe that an  extension is both possible and likely.  As a result, they are concerned that a  late decision to extend TRIA would create confusion and disarray in the  industry because of the lead time needed to tailor business operations and  plans to an insurance environment with TRIA or a federal government  backup or, alternatively, without one.
section_title: Despite Availability, Few Are Buying Terrorism Insurance, and the Industry Has Made Little Progress toward Post-TRIA Coverage
paragraphs: While TRIA has improved the availability of terrorism insurance,  particularly for high-risk properties in major metropolitan areas, most  commercial policyholders are not buying the coverage.  Limited industry  data suggest that 10 to 30 percent of commercial policyholders are  purchasing terrorism insurance, perhaps because most policyholders  perceive themselves at relatively low risk for a terrorist event. Some  industry experts are concerned that those most at risk from terrorism are  generally the ones buying terrorism insurance. In combination with low  purchase rates, these conditions could result in uninsured losses for those  businesses without terrorism coverage or cause financial problems for  insurers, should a terrorist event occur.  Moreover, even policyholders who  have purchased terrorism insurance may remain uninsured for significant  risks arising from certified terrorist events involving NBC agents,  radioactive contamination, or fire following the events.  Finally, although  insurers and some reinsurers have cautiously reentered the terrorism risk  market, insurance industry participants have made little progress toward  developing a mechanism that could permit the commercial insurance  market to resume providing terrorism coverage without a government  backstop.
subsections: section_title: TRIA Has Improved the Availability of Terrorism Insurance, and Some High-Risk Policyholders Have Bought Coverage
paragraphs: TRIA has improved the availability of terrorism insurance, especially for  some high-risk policyholders.  According to insurance and risk  management experts, these were the policyholders who had difficulty  finding coverage before TRIA.  Although industry data on policyholder  characteristics are limited and cannot be generalized to all policyholders in  the United States, risk management and real estate representatives  generally agree that after TRIA was passed, policyholders—including  borrowers obtaining mortgages for “trophy” properties, owners and  developers of high-risk properties in major city centers, and those in or  near “trophy” properties—were able to purchase terrorism insurance.
Additionally, TRIA contributed to better credit ratings for some commercial  mortgage-backed securities.  For example, prior to TRIA’s passage, the  credit ratings of certain mortgage-backed securities, in which the  underlying collateral consisted of a single high-risk commercial property,  were downgraded because the property lacked or had inadequate terrorism  insurance.  The credit ratings for other types of mortgage-backed  securities, in which the underlying assets were pools of many types of  commercial properties, were also downgraded but not to the same extent  because the number and variety of properties in the pool diversified their  risk of terrorism.  Because TRIA made terrorism insurance available for the  underlying assets, thus reducing the risk of losses from terrorist events, it  improved the overall credit ratings of mortgage-backed securities,  particularly single-asset mortgage-backed securities.  Credit ratings affect  investment decisions that revolve around factors such as interest rates  because higher credit ratings result in lower costs of capital. According to  an industry expert, investors use credit ratings as guidance when  evaluating the risk of mortgage-backed securities for investment purposes.   Higher credit ratings reflect lower credit risks.  The typical investor  response to lower credit risks is to accept lower returns, thereby reducing  the cost of capital, which translates into lower interest rates for the  borrower.
section_title: Most Policyholders Have Not Bought Terrorism Insurance
paragraphs: Although TRIA improved the availability of terrorism insurance, relatively  few policyholders have purchased terrorism coverage.  We testified  previously that prior to September 11, 2001, policyholders enjoyed “free”  coverage for terrorism risks because insurers believed that this risk was so  low that they provided the coverage without additional premiums as part of  the policyholder’s general property insurance policy.  After September 11,  prices for coverage increased rapidly and, in some cases, insurance became  very difficult to find at any price.  Although a purpose of TRIA is to make  terrorism insurance available and affordable, the act does not specify a  price structure.
However, experts in the insurance industry generally agree that after the  passage of TRIA, low-risk policyholders (e.g., those not in major urban  centers) received relatively low-priced offers for terrorism insurance  compared to high-risk policyholders, and some policyholders received  terrorism coverage without additional premium charges.  Yet according to  insurance experts, despite low premiums, many businesses (especially  those not in “target” localities or industries) did not buy terrorism  insurance.  Some simply may not have perceived themselves at risk from  terrorist events and considered terrorism insurance, even at low premiums  (relative to high-risk areas), a bad investment.  According to insurance  sources, other policyholders may have deferred their decision to buy  terrorism insurance until their policy renewal date.
Some industry experts have voiced concerns that low purchase rates may  indicate adverse selection—where those at the most risk from terrorism  are generally the only ones buying terrorism insurance.  Although industry  surveys are limited in their scope and not appropriate for market-wide  projections, the surveys are consistent with each other in finding low  “take-up” rates, the percentage of policyholders buying terrorism  insurance, ranging from 10 to 30 percent.  According to one industry  survey, the highest take-up rates have occurred in the Northeast, where  premiums were generally higher than the rest of the country.
The combination of low take-up rates and high concentration of purchases  in an area thought to be most at risk raises concerns that, depending on its  location, a terrorist event could have additional negative effects.
If a terrorist event took place in a location not thought to be a terrorist  “target,” where most businesses had chosen not to purchase terrorism  insurance, then businesses would receive little funding from insurance  claims for business recovery efforts, with consequent negative effects  on owners, employers, suppliers, and customers.
Alternatively, if the terrorist event took place in a location deemed to be  a “target,” where most businesses had purchased terrorism insurance,  then adverse selection could result in significant financial problems for  insurers.  A small customer base of geographically concentrated,  high-risk policyholders could leave insurers unable to cover potential  losses facing possible insolvency. If, however, a higher percentage of  business owners had chosen to buy the coverage, the increased number  of policyholders would have reduced the chance that losses in any one  geographic location would create a significant financial problem for an  insurer.
section_title: Tighter Exclusions Leave Policyholders Exposed to Significant Perils
paragraphs: Since September 11, 2001, the insurance industry has moved to tighten  long-standing exclusions from coverage for losses resulting from NBC  attacks and radiation contamination. As a result of these exclusions and  the actions of a growing number of state legislatures to exclude losses from  fire following a terrorist attack, even those policyholders who choose to  buy terrorism insurance may be exposed to potentially significant losses.   Although NBC coverage was generally not available before September 11,  after that event insurers and reinsurers recognized the enormity of  potential losses from terrorist events and introduced new practices and  tightened treaty language to further limit as much of their loss exposures as  possible. (We discuss some of these practices and exclusions in more detail  in the next section.)   State regulators and legislatures have approved these  exclusions, allowing insurers to restrict the terms and conditions of  coverage for these perils. Moreover, because TRIA’s “make available”  requirements state that terms for terrorism coverage be similar to those  offered for other types of policies, insurers may choose to exclude the  perils from terrorism coverage just as they have in other types of coverage.  According to Treasury officials, TRIA does not preclude Treasury from  providing reimbursement for NBC events, if insurers offered this coverage.  However, policyholder losses from perils excluded from coverage, such as  NBCs, would not be “insured losses” as defined by TRIA and would not be  covered even in the event of a certified terrorist attack.
In an increasing number of states, policyholders may not be able to recover  losses from fire following a terrorist event if the coverage in those states is  not purchased as part of the offered terrorism coverage.  We have  previously reported that approximately 30 states had laws requiring  coverage for “fire-following” an event —known as the standard fire policy  (SFP)—irrespective of the fire’s cause.  Therefore, in SFP states fire  following a terrorist event is covered whether there is insurance coverage  for terrorism or not.  After the terrorist attacks of September 11, 2001,  some legislatures in SFP states amended their laws to allow the exclusion  of fire following a terrorist event from coverage.  As of March 1, 2004, 7 of  the 30 SFP states had amended their laws to allow for the exclusion of acts  of terrorism from statutory coverage requirements.  However as  discussed previously, the “make available” provision requires coverage  terms offered for terrorist events to be similar to coverage for other events.   Treasury officials explained that in all non-SFP states, and the 7 states with  modified-SFPs, insurers must include in their offer of terrorism insurance,  coverage for fire following a certified terrorist event because coverage for  fire is part of the property coverage for all other risks.  Thus, policyholders  who have accepted the offer would be covered for fire following a terrorist  event, even though their state allows exclusion of the coverage.  However,  policyholders who have rejected their offer of coverage for terrorism  insurance would not be covered for fire following a terrorist event.   According to insurance experts, losses from fire damage can be a relatively  large proportion of the total property loss.  As a result, excluding terrorist  events from SFP requirements could result in potentially large losses that  cannot be recovered if the policyholder did not purchase terrorism  coverage.  For example, following the 1994 Northridge earthquake in  California, total insured losses for the earthquake were $15 billion—$12.5  billion of which were for fire damage. According to an insurance expert,  policyholders were able to recover losses from fire damage, because  California is an SFP state, even though most policies had excluded  coverage for earthquakes.
section_title: Reinsurers Have Cautiously Returned to the Terrorism Insurance Market, but Many Insurers Have Not Bought Reinsurance
paragraphs: Under TRIA, reinsurers are offering a limited amount of coverage for  terrorist events, specifically for the insurer deductibles and 10 percent  share, but insurers have not been buying much of this reinsurance.   According to insurance industry sources, TRIA’s ceiling on potential losses  has enabled reinsurers to return cautiously to the market.  That is,  reinsurers generally are not offering coverage for terrorism risk beyond the  limits of the insurer deductibles and the 10 percent share that insurers may  have to pay under TRIA.  In spite of reinsurers’ willingness to offer this  coverage, company representatives have said that many insurers have not  purchased reinsurance. Insurance experts suggested that the low demand  for the reinsurance might reflect, in part, commercial policyholders’  generally low take-up rate for terrorism insurance.  Moreover, insurance  experts also have suggested that insurers may believe that the price of  reinsurance is too high relative to the premiums they are earning from  policyholders for terrorism insurance.
The relatively high prices charged for the limited amounts of terrorism  reinsurance available are probably the result of interrelated factors.  First,  even before September 11 both insurance and reinsurance markets were  beginning to harden; that is, prices were beginning to increase after several  years of lower prices.  Reinsurance losses resulting from September 11 also  depressed reinsurance capacity and accelerated the rise in prices.  The  resulting hard market for property-casualty insurance affected the price of  most lines of insurance and reinsurance. A notable example has been the  market for medical malpractice insurance.  The hard market is only now  showing signs of coming to an end, with a resulting stabilization of prices  for most lines of insurance.  In addition to the effects of the hard market,  reinsurer awareness of the adverse selection that may be occurring in the  commercial insurance market could be another factor contributing to  higher reinsurance prices. Adverse selection usually represents a  larger-than-expected exposure to loss.  Reinsurers are likely to react by  increasing prices for the terrorism coverage that they do sell.
In spite of the reentry of reinsurers into the terrorism market, insurance  experts said that without TRIA caps on potential losses, both insurers and  reinsurers likely would still be unwilling to sell terrorism coverage because  they have not found a reliable way to price their exposure to terrorist  losses. According to industry representatives, neither insurers nor  reinsurers can estimate potential losses from terrorism or determine prices  for terrorism insurance without a pricing model that can estimate both the  frequency and the severity of terrorist events.  Reinsurance experts said  that current models of risks for terrorist events do not have enough  historical data to dependably estimate the frequency or severity of terrorist  events, and therefore cannot be relied upon for pricing terrorism insurance.  According to the experts, the models can predict a likely range of insured  losses resulting from the damage if specific event parameters such as type  and size of weapon and the location are specified. However, the models are  unable to predict the probability of such an attack.
Even as they are charging high prices, reinsurers are covering less. In  response to the losses of September 11, industry sources have said that  reinsurers have changed some practices to limit their exposures to acts of  terrorism.  For example, reinsurers have begun monitoring their exposures  by geographic area, requiring more detailed information from insurers,  introducing annual aggregate limits and event limits, excluding large  insurable values, and requiring stricter measures to safeguard assets and  lives where risks are high.  And as discussed previously, almost  immediately after September 11 reinsurers began broadening NBC  exclusions beyond scenarios involving industrial accidents, such as nuclear  plant accidents and chemical spills, to encompass intentional destruction  from terrorists.  For example, post-September 11 exclusions for nuclear  risks include losses from radioactive contamination to property and  radiation sickness from dirty bombs.
As of March 1, 2004, industry sources indicated that there has been little  development or movement among insurers or reinsurers toward  developing a private-sector mechanism that could provide capacity,  without government involvement, to absorb losses from terrorist events.   Industry officials have said that their level of willingness to participate  more fully in the terrorism insurance market in the future will be  determined, in part, by whether any more events occur.  Industry sources  could not predict if reinsurers would return to the terrorism insurance  market after TRIA expires, even after several years and even if no more  major terrorist attacks were to occur in the United States.  They explained  that reinsurers are still recovering from the enormous losses of September  11 and still cannot price terrorism coverage. In the long term and without  another major terrorist attack, insurance and reinsurance companies might  eventually return.  However, should another major terrorist attack take  place, reinsurers told us that they would not return to this market—with or  without TRIA.
section_title: Conclusions
paragraphs: TRIA gave Treasury a very challenging task—to develop what is effectively  the world’s largest reinsurer.  This task was complicated by the very real  possibility that Treasury could have been called on to perform at any time,  without advance notice.  More than a year after TRIA took effect, key  pieces of this reinsurance entity are either in place or nearly in place.   Perhaps most importantly for Treasury, the U.S. government, and the  American people, no further terrorist attack, major or minor, has yet  occurred on American soil.  In spite of this breathing space and all that  Treasury has accomplished, considerable work remains.  Key components  of the Terrorism Risk Insurance Program defined by TRIA remain  uncompleted.  At best, all the components will be in place shortly before  the second anniversary of the 3-year program.  Recognizing the complexity  of the task, it is difficult to be critical, particularly given the lack of a  terrorist event.  However, had an attack occurred, the incomplete  preparation could have added to the plight of the victims.
Congress had two major objectives in establishing TRIA.  The first was to  ensure that business activity did not suffer from the lack of insurance by  requiring insurers to continue to provide protection from the financial  consequences of another terrorist attack.  Since TRIA was enacted in  November 2002, terrorism insurance generally has been available to  businesses.  While most have not purchased this coverage, purchases have  been higher in areas considered to be at high risk of another terrorist  attack. Quantifiable evidence is lacking on whether having TRIA coverage  available has contributed to the economy. However, the current revival of  economic activity suggests that the decision of most commercial  policyholders to decline terrorism coverage has not resulted in widespread,  negative economic effects. As a result, the first objective of TRIA appears  largely to have been achieved.
Congress’s second objective was to give the insurance industry a  transitional period during which it could begin pricing terrorism risks and  developing ways to provide such insurance after TRIA expires. The  insurance industry has not yet achieved this goal. We observed after  September 11 the crucial importance of reinsurers for the survival of the  terrorism insurance market and reported that reinsurers’ inability to price  terrorism risks was a major factor in their departure from the market.  Additionally, most industry experts are tentative about predictions of the  level of reinsurer and insurer participation in the terrorism insurance  market after TRIA expires.  Unfortunately, insurers and reinsurers still have  not found a reliable method for pricing terrorism insurance, and although  TRIA has provided reinsurers the opportunity to reenter the market to a  limited extent, industry participants have not developed a mechanism to  replace TRIA.  As a result, reinsurer and, consequently, insurer  participation in the terrorism insurance market likely will decline  significantly after TRIA expires.
Not only has no private-sector mechanism emerged for supplying terrorism  insurance after TRIA expires, but also to date there has been little  discussion of possible alternatives for ensuring the availability and  affordability of terrorism coverage after TRIA expires. Congress may  benefit from an informed assessment of possible alternatives—including  both wholly private alternatives and alternatives that could involve some  government participation or action.  Such an assessment could be a part of  Treasury’s TRIA-mandated study to “assess…the likely capacity of the  property and casualty insurance industry to offer insurance for terrorism  risk after termination of the Program.”
section_title: Recommendation for Executive Action
paragraphs: As part of the response to Treasury’s TRIA-mandated study requiring an  assessment of the effectiveness of TRIA and evaluating the capacity of the  industry to offer terrorism insurance after TRIA expires, we recommend   that the Secretary of the Treasury, after consulting with the insurance  industry and other interested parties, also identify for Congress an array of  alternatives that may exist for expanding the availability and affordability  of terrorism insurance after TRIA expires.  These alternatives could assist  Congress during its deliberations on how best to ensure the availability and  affordability of terrorism insurance after December 2005.
section_title: Agency Comments
paragraphs: We requested comments on a draft of this report from the head of the  Department of the Treasury or his designee.  The Assistant Secretary for  Financial Institutions at Treasury provided written comments that are  included in appendix I stating, in general, that Treasury believed our report  provided a thorough and well-balanced discussion of the impact and  implementation of the Terrorism Risk Insurance Act of 2002.  These written  comments also provided amplification of certain points related to  Treasury’s implementation of the Act.  For example, Treasury commented  that its “… implementation of TRIA has been guided by prioritizing the  actions that were needed to make the program operational right away.”    Treasury also described the emergency procedures in place since “the early  days of the program.”  Treasury believes these contingency plans would  have allowed it to establish and implement a process for receiving,  reviewing, and paying claims that would have enabled it to respond quickly  to a terrorist event, if it had been necessary.  Treasury also provided  technical comments on the report that were incorporated as appropriate.
As agreed with your offices, unless you publicly release its contents earlier,  we plan no further distribution of this report until 30 days after its issuance  date.  At that time, we will send copies of this report to the Chair and  Ranking Minority Member, Senate Committee on Banking, Housing and  Urban Affairs; the Ranking Minority Member, Committee on Financial  Services, House of Representatives; and other interested congressional  members and committees.  We will also make copies available to others  upon request.  In addition, this report will also be available at no charge on  GAO’s Web site at http://www.gao.gov.
This report was prepared under the direction of Lawrence D. Cluff,  Assistant Director. If you or your staff have any questions regarding this  report, please contact the Assistant Director or me at (202) 512-8678.   Barry Kirby, Tarek Mahmassani, Angela Pun and Barbara Roesmann also  made key contributions to this report.
section_title: Comments from the Department of the Treasury
subsections: section_title: GAO’s Mission
paragraphs: The General Accounting Office, the audit, evaluation and investigative arm of  Congress, exists to support Congress in meeting its constitutional responsibilities  and to help improve the performance and accountability of the federal government  for the American people. GAO examines the use of public funds; evaluates federal  programs and policies; and provides analyses, recommendations, and other  assistance to help Congress make informed oversight, policy, and funding  decisions. GAO’s commitment to good government is reflected in its core values of  accountability, integrity, and reliability.
section_title: Obtaining Copies of GAO Reports and Testimony
paragraphs: The fastest and easiest way to obtain copies of GAO documents at no cost is  through the Internet. GAO’s Web site (www.gao.gov) contains abstracts and full- text files of current reports and testimony and an expanding archive of older  products. The Web site features a search engine to help you locate documents  using key words and phrases. You can print these documents in their entirety,  including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and  correspondence. GAO posts this list, known as “Today’s Reports,” on its Web site  daily. The list contains links to the full-text document files. To have GAO e-mail this  list to you every afternoon, go to www.gao.gov and select “Subscribe to   e-mail alerts” under the “Order GAO Products” heading.
subsections: section_title: Order by Mail or Phone
section_title: To Report Fraud, Waste, and Abuse in Federal Programs
section_title: Public Affairs