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CBO Estimates Cost of TRIA Extension to be $8.4 Billion Over the Next Decade

September 18, 2007 9:36 AM | Print this page |

The Congressional Budget Office (“CBO”) released a report last week that estimated the cost of extending the Federal Terrorism Risk Insurance Program to be $3.5 billion for the next five years and $8.4 billion for the next decade.  This estimate comes as Congress settles into a new session and prepares to debate the Terrorism Risk Insurance Revision and Extension Act of 2007 (“TRIREA”), which among other things, seeks to extend the federal terrorism insurance program, due to expire on December 31, 2007, for fifteen more years.  The CBO’s estimate erected a hurdle in the proposed act’s path to passage, delaying a vote in the House of Representatives on the act by at least a week.  We previously discussed some of TRIREA’s travels through Congress here, here, and here.

The CBO report details how they prepared the estimate was prepared, stating  “[t]here is no reliable way to predict how much insured damage terrorists might cause in any specific year,” and therefore the “CBO’s estimate of the cost of financial assistance provided under [TRIREA] represents an expected value of payments from the program – a weighted average that reflects industry experts’ opinions of various outcomes ranging from zero damages up to very large damages resulting from possible future terrorist attacks.”  According to the report, the “expected value can be thought of as the amount of an insurance premium that would be necessary to just offset the government’s losses from providing this insurance, although firms do not pay any premium for the federal assistance offered” under TRIREA.

The report raised concerns in Congress that the proposed act would not be in compliance with the Democrats’ pay-as-you-go budgetary rules, which require any new mandatory spending or tax cuts to be fully offset.  As currently drafted, TRIREA does not contain any offsets.  However, according to press reports, Representative Barney Frank, Democrat from Massachusetts and co-sponsor of TRIREA, was unsure why the pay-as-you-go issue was a concern.  Mr. Frank is quoted by multiple press reports as stating that the delay was puzzling, as “TRIA doesn’t spend a penny unless there is an attack.”  Additionally, in these same reports, Mr. Frank noted that there would need to be a separate vote to release funds if a covered terrorist attack occurred, and specific offsets could be considered at that time when a more specific estimate of cost would be available.

Although the budget issue is troubling for many of the bill’s supporters, the press reports that the consensus is that these concerns will be worked out and are likely to delay a House of Representatives vote on the proposed bill for only a week.  The bill still apparently has widespread support and is expected to pass.

Click here to review the CBO report.

InsureReinsure.com will continue to monitor TRIA-related developments.