TRIA requires private insurers to offer terrorism coverage in commercial property and casualty insurance, including workers’ compensation insurance policies. Insurers must make terrorism coverage available to their policyholders on the same terms and conditions, including coverage levels, as other types of insurance coverage. For example, an insurer offering $100 million in commercial property coverage must offer $100 million in coverage for property damage from a certified terrorist attack. However, insurers could impose an additional charge for the coverage and policyholders, except in workers’ compensation policies, generally have the option of not purchasing it. Under TRIA, the federal government is to reimburse insurers for a portion of their losses from certified terrorist acts. Specifically, the federal government would reimburse insurers for 85 percent of their losses after the insurers pay a deductible amounting to 20 percent of the previous year’s direct earned premiums. The federal funding is activated when aggregate industry losses exceed $100 million and is capped at an annual amount of $100 billion. Originally enacted as a 3-year program, Congress has reauthorized the program twice and recently extended it until 2014. In December 2005, Congress passed the Terrorism Risk Insurance Extension Act that increased the required amount insurers would have to pay in the aftermath of a terrorist attack. In December 2007, Congress approved the Terrorism Risk Insurance Program Reauthorization Act and eliminated the distinction between terrorist acts carried out by foreign and domestic actors. It also clarified language on insurers’ liability, stating that insurers are not responsible for losses that exceed the federal government’s annual liability cap of $100 billion. Commercial property insurance policies can be simple or complex, depending on the value and location of the properties being insured. Property owners may insure properties individually or consolidate multiple properties in a portfolio and insure them with a single policy. The benefits of grouping properties include spreading the cost (premium) across more than one building on the premise that all buildings in a portfolio are unlikely to be damaged by the same peril in the same event. Policies with high insured values can require multiple insurers to provide coverage, with each providing a portion of the coverage up to the full amount of the policy, because the total insured value is too great for any one insurer to absorb (see fig. 1). According to a representative of a large brokerage firm, policyholders typically buy property coverage, including terrorism coverage, through one all-risk policy, which insures losses from multiple perils. Policyholders generally do not purchase terrorism insurance in amounts that would cover the total replacement value of the insured property, but rather purchase insurance in amounts that reflect the maximum amount of foreseeable losses that could occur in a terrorist attack. Also, policyholders may determine the amount of terrorism coverage to purchase based on amounts required by a lender providing the mortgage on the property. States have primary responsibility for regulating the insurance industry in the United States, and state insurance regulators coordinate their activities in part through the NAIC. The degree of oversight of insurance varies by state and insurance type. In some lines of insurance, insurers may file insurance policy forms with state regulators that help determine the extent of coverage provided by a policy by approving the wording of policies, including the explicit exclusions of some perils. According to a NAIC representative, while practices vary by state, state regulators generally regulate prices for personal lines of insurance and workers’ compensation policies but not for commercial property/casualty policies. In most cases, state insurance regulators perform neither rate nor form review for large commercial property/casualty insurance contracts because it is presumed that businesses have a better understanding of insurance contracts and pricing than the average personal-lines consumer. Reinsurers generally are not required to get state regulatory approval for the terms of coverage or the prices they charge. According to a variety of sources, commercial property terrorism insurance currently appears to be widely available on a nationwide basis at rates viewed as reasonable, largely due to the TRIA program and the current “soft” insurance market. However, some policyholders in urban areas viewed as being at higher risk of a terrorist attack, particularly in Manhattan and to a lesser extent in some other high-risk cities such as Chicago and San Francisco, may be forced to take additional steps to overcome challenges they may have initially faced in obtaining desired amounts of coverage at prices viewed as reasonable. Policyholders generally have been able to obtain desired or required amounts of terrorism coverage by increasing the number of carriers in what already may be large and complex insurance programs, adding to what can be a time-consuming and complicated process for policyholders and their insurance brokers. Others secure needed coverage by purchasing all or a portion of their terrorism coverage in a separate insurance policy, or self- insuring through a captive insurance company. According to data compiled by two large insurance brokers, a majority of their commercial clients nationwide purchase terrorism insurance coverage, and the premium rates for such coverage generally have been stable in recent years. As shown in figure 2, one of these brokers reported that approximately 60 percent of its clients purchased some form of terrorism coverage each year from 2005 through 2007. Another large insurance broker reported that take-up rates for its large property clients have remained between 60 percent and 65 percent since 2004. According to a large broker, the Northeast, which includes New York City, has the largest percentage of companies that purchase terrorism coverage for properties, with about 70 percent having purchased it in 2007. Real estate companies account for the largest percentage of clients that purchased terrorism insurance coverage, with more than 80 percent of these clients having done so in 2007. Manufacturing and construction companies had the lowest purchase rates, with 45 percent and 34 percent, respectively, having purchased coverage in 2007. Data collected by one of these large brokers also show that the premiums that their clients paid for terrorism coverage, expressed as a percentage of the commercial property premiums, generally have been stable at around 4 percent since 2003 (fig. 2). Another large broker also reported that premiums have been stable at around 4 percent, on average, since 2006. An official from one of these brokerages told us steady purchase rates between 2005 and 2007 may indicate that policyholders who want to purchase terrorism coverage have been able to purchase it. According to representatives from these two brokers, the primary reason why approximately 40 percent of clients did not purchase terrorism coverage is that they may not have perceived themselves at risk of a terrorist attack, particularly those in nonurban areas or those in industries perceived to be at lower risk of attack, such as manufacturing. Other reasons clients may not have purchased coverage include the absence of lender requirements or the cost of coverage, according to one large broker. Information we collected in a range of interviews with policyholders, national and regional brokers, insurers, and others was consistent with the view that terrorism insurance coverage is available nationwide at premium rates viewed as reasonable. Several policyholders we contacted that own large and small portfolios of real estate throughout the United States, including national hotel chains, sports stadiums, office towers, shopping malls, and residential buildings, told us they could obtain as much terrorism coverage as they sought to obtain. Some policyholders and regional brokers also said that terrorism insurance premiums continue to decline while the quality of coverage improves. For example, a representative from a commercial real estate company that owns large office towers, a luxury resort, and an industrial property in major U.S. cities said the company recently increased its terrorism coverage by more than 50 percent and decreased its premium by more than 20 percent. In at least one state, an insurer and state regulator told us terrorism coverage may be provided at no additional cost to policyholders, especially those with properties perceived to be at low risk of a terrorist attack. Insurers, policyholders, and other industry participants cited the TRIA program and the current soft, or competitive, market as the key reasons that terrorism coverage generally has been available nationwide. Without the federal backstop for potential insurance losses related to terrorism, industry participants said that coverage availability could decline substantially. For example, some insurers told us the amount of terrorism coverage they provide would decline—by more than 95 percent for one insurer—without the TRIA provision that provides reimbursement for insured losses that exceed the amount of an insurer’s TRIA deductible. In a soft market, insurance is widely available and sold at a lower cost, making it easier for buyers to obtain insurance. According to insurance industry participants, recent strong profits, increases in investment income, and a lack of large losses from major catastrophes have contributed to insurers’ ability to increase their capital levels in recent years. According to some brokers, high levels of capital have increased insurers’ capacity and willingness to provide terrorism insurance coverage. However, some interviewees cautioned that another terrorist attack or “hardening” of the general terrorism insurance market could reduce the current supply of terrorism insurance coverage and increase pricing. In the past, insurers frequently have responded to catastrophic events by cutting back coverage significantly or substantially increasing premiums for policyholders. For example, such reactions took place in the Florida market after Hurricane Andrew in 1992, in California after the Northridge earthquake of 1994, and more widely following the September 11 attacks. A broker with a large national firm told us that the insurance industry has remained highly sensitive to the potential financial consequences of another terrorist attack since September 11. According to one industry analyst, even a modest terrorist attack in the future could cause significant fear and concern in the market and lead to increases in prices and restrictions on availability. Moreover, some industry analysts said that insurers could suffer significant losses for a variety of other reasons, such as the costs of a large hurricane or earthquake or declines in the values of their investment portfolios, which might make them less willing to offer terrorism coverage under current terms and pricing. While terrorism insurance coverage generally is available nationwide, many industry participants reported that some policyholders in major cities viewed as being at higher risk of terrorist attack, particularly in Manhattan, may initially experience challenges in obtaining desired amounts of coverage.