US President Bush today signed into law the Terrorism Risk Insurance Act of 2002.
An announcement from the US Treasury said that since the terrorist attacks of September 11, 2001, the economy has been harmed by the withdrawal of many insurance companies from the marketplace for terrorism risk insurance. This withdrawal in the face of great uncertainty as to their risk exposure to future terrorist attacks reportedly led to the cancellation of construction projects, increased business costs for the insurance that was available, and substantial risk-shifting among corporate balance sheets.
Treasury Secretary Paul O’Neill said, *”This legislation is a critical element in our economic recovery. It reduces the economic risks and economic consequences associated with the threat of future terrorist attacks. It will help restore insurance capacity to the marketplace, which will promote new construction and spur economic activity.”*
The new law establishes a temporary Federal program providing for a system of shared public and private compensation for insured commercial property and casualty losses arising from acts of terrorism under the Act. The program will be administered by the Treasury Department and will sunset on December 31, 2005. The Treasury Department intends to work closely with the National Association of Insurance Commissioners (NAIC) to implement the program and has begun consultations with the NAIC on a range of implementation issues.
Under the new law, insurance companies included under the program must make available to their policyholders coverage for insured losses from acts of terrorism under the program. The law also requires insurance companies to disclose to policyholders the premium charged for terrorism risk insurance and the Federal share of compensation provided under the law.
The Treasury Department said it will work closely with the NAIC to monitor the effects of the new law on insurance premiums. It also announced the launch of a web site to make information available to the public on its implementation of the Act. The site, will provide updated information on the program, including announcements of all rulemakings, interpretive guidance, and requests for public comments.