The insurance industry offers many types of coverages intended to protect businesses as well as individuals. While the extent of regulation varies by state and by line of insurance, state insurance regulators oversee the provision of insurance; for example, states may approve the rates (prices) insurers may charge and require insurers to cover certain events. In order to ensure the availability of terrorism coverage after September 11, Congress enacted TRIA to temporarily provide some property/casualty insurers some reimbursement for insured losses, including workers’ compensation losses, resulting from specific acts of terrorism. Insurance can be grouped into three main types: property/casualty, life, and health. Property/casualty insurance includes several types of insurance. Commercial property/casualty insurers cover physical losses to property, business interruptions or loss of use of buildings due to property damage, and also legal liability related to the maintenance of the property and business operations. Workers’ compensation insurance is considered a separate category of commercial property/casualty insurance, and the insurers provide employers protection against work-related disability and death. In addition, with certain exceptions, almost all employers are required to provide some form of workers’ compensation insurance to cover employer liability for workers who are killed, injured, or disabled on the job from any cause. Personal lines of property/casualty insurance include policies for homeowners and automobile coverage. Homeowners insurance provides coverage for physical losses to the home, its contents, and additional living expenses for the owner while the home is uninhabitable. Life insurers sell either individual or group policies that provide benefits to designated survivors after the death of an insured. Health insurers cover medical expenses resulting from sickness and injury. States have primary responsibility for regulating the insurance industry in the United States, and state insurance regulators coordinate their activities in part through NAIC. The degree of oversight of insurance varies by state and insurance type. In some lines of insurance, such as workers’ compensation, insurers may file insurance policy forms with state regulators, who 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 an NAIC representative, while practices vary by state, state regulators generally regulate prices for personal lines of insurance and workers’ compensation policies but not for group life or commercial property/casualty policies. In most cases, state insurance regulators perform neither rate nor form review for commercial property/casualty insurance contracts because it is presumed that businesses have a better understanding of insurance contracts than the average personal lines consumer. However, reinsurers—companies that provide insurance to insurers—generally are not required to get state regulatory approval for the terms of coverage or the prices they charge. Terrorism attacks, particularly including those using NBCR weapons, could result in catastrophic losses. Each type of weapon—nuclear, biological, chemical, and radiological—represents different methods of attack. Further, many different agents can be used to carry out a biological, chemical, or radiological attack. See table 1 for general descriptions of each type of weapon and examples of available agents. The agents used to undertake NBCR attacks have differing characteristics and properties and would affect people and property in myriad ways. Of the four types of NBCR attacks, a nuclear bomb would be the most likely to result in fires of any consequence. The intense heat produced by the nuclear explosion and subsequent reactions could produce extensive fires located throughout the area of detonation. While the detonation of a dirty bomb (conventional explosives used to disperse radioactive material) could result in blast damage, the resulting fire damage likely would be confined to the immediate area. However, the detonation of both nuclear and dirty bombs would release radioactive materials, resulting in the need to decontaminate buildings and provide immediate healthcare. The distance these radioactive agents disperse from the original detonation site would depend on many factors, including the strength of the explosive and meteorological conditions. While the release of chemical and biological agents is significantly less likely to result in fires of any consequence, the agents also have the potential to contaminate buildings and make them unusable for long periods. These agents could be released within buildings or outdoors, with chemical agents more likely than biological agents to result in immediate harm to humans. All NBCR attacks, depending on size of the explosion or the quantity of the agent, have the potential to result in fatalities, injuries, or illness. After the events of September 11, when certain coverage for terrorism events disappeared, Congress passed TRIA. This law created a temporary program that effectively functions as reinsurance—for the commercial property/casualty and workers’ compensation insurance industries only. Under TRIA, the federal government would reimburse insurers in these lines for 90 percent of their losses, up to a specified level, after the insurers paid a deductible. The program also would cover losses caused by NBCR attacks, if insurers had included this coverage in an insurance policy. However, coverage of NBCR attacks, as with other terrorist attacks, would have to meet the program’s criteria to trigger reimbursements. TRIA requires certain insurers to “make available” coverage for terrorist events that the Secretary of the Treasury has certified as committed by individuals acting on behalf of a foreign person or interest. Commercial property/casualty insurers must offer terrorism coverage to their policyholders, although they could impose an additional charge. Policyholders have the option of not purchasing the coverage and adding a terrorism exclusion to their policies. If policyholders chose to purchase the terrorism coverage for their property/casualty policies, insurers then could not add any additional exclusions or conditional language to the policies. In December 2005, Congress extended many of the same provisions of the original statute in the Terrorism Risk Insurance Extension Act of 2005, but increased the required amount insurers would have to pay in the aftermath of a terrorist attack. While deliberating the extension of TRIA, Congress considered whether to cover additional lines of coverage, such as group life insurance, and set a lower deductible that applied only to NBCR terrorist events. However, Congress did not enact these changes. The TRIA extension, which continues to apply only to the commercial property/casualty industry, is set to expire on December 31, 2007. Several commonly accepted principles underlie insurers’ ability to determine whether to offer coverage for a particular risk and at what price. Ultimately, the decision becomes a question of whether sufficient information exists for insurers to accurately estimate potential losses. According to standard insurance theory, four major principles contribute to the ability of insurers to estimate and cover future losses: the law of large numbers, measurability, fortuity, and the size of the potential losses. However, measuring and predicting losses associated with NBCR risks can be particularly challenging for a number of reasons, including lack of experience with similar attacks, difficulty in predicting terrorists’ intentions, and the potentially catastrophic losses that could result. Nevertheless, models have been developed that attempt to assist insurers in evaluating terrorist and NBCR risks. However, many insurers and other insurance experts continue to believe that there is an insufficient basis for estimating the probable frequency of terrorist attacks, including NBCR attacks. Four principles generally underlie an insurance company’s willingness to provide insurance for a particular risk or type of risk. Each contributes to the insurer’s ability to measure and predict, with a reasonable degree of accuracy, the likely frequency of occurrence and the probable severity of losses that will result from each occurrence. In the ideal situation, when all these factors are satisfied, the insurer can add other expenses and profits to the expected losses and determine a price that is appropriate to the risk. Insurers may still decide to offer insurance for risks that deviate from the “ideal.” However, as one or more of the factors vary from the ideal, the ability of the insurer to estimate future losses decreases, the risk increases, and the insurer’s capital is more exposed to inadequate prices for the coverage that the insurer offers. These principles are The law of large numbers must apply. There must be a sufficiently large number of homogeneous units exposed to random losses, both historically and prospectively, to make the future losses reasonably predictable. This principle works best when there are large numbers of losses with similar characteristics spread across a large group. For example, an automobile insurer could analyze annual data on the frequency and severity (cost) of accidents and the characteristics of drivers (gender or age) involved in the accidents to predict expected losses for certain types of drivers, and thus set premiums adequate to cover these losses. The greater the experience with losses, the better the insurer would be able to estimate both the frequency and the severity of future losses, based on what happened in the past. The loss must be definite and measurable. The insurer must be capable of determining whether a loss has taken place, and setting a dollar value on the amount of the loss. The loss must be fortuitous or accidental. That is, the loss must result from chance and not be something that is certain to happen. To the extent that a future loss approaches certainty, an insurer would have to charge the full value of the loss plus an additional amount for the expenses incurred. The loss must not be catastrophic. That is, the losses should not affect a very large percentage of an insurance company’s policyholders at the same time, for example, in a limited geographic area. Alternatively, a catastrophic loss is one that is extraordinarily large relative to the amount of exposure in an insurance pool. When applied to NBCR terrorist risks, these principles can help explain why NBCR risks are so challenging for insurers. Most importantly, because so few NBCR attacks have occurred, the pool of experience in the United States is very limited, and the law of large numbers does not help insurers to measure and predict the frequency and severity of future losses. One of the reasons many insurers we interviewed had concerns about insuring NBCR risks was the small number of historical events that could be used as a basis for predicting the future frequency and severity of these risks.