Currently hidden on the legislative agenda of the U.S. Congress, behind the hot topics of war with Iraq and the formation of a Department of Homeland Security, a debate simmers over two related bills concerning terrorism insurance.  While there are some commonalties between the House bill (H.R.3210) passed on 29 November 2001 by a vote of 227-193 and the Senate bill (S.2600) passed on 18 June 2002 by a vote of 84-14 , three key issues may cause a legislative impasse for this session of Congress.  They are:

1. A debate over whether grants or loans should be used to create a federally funded backstop to limit the fiscal obligation of insurance companies during a deliberate catastrophic event. While there is some variance between how the two bills calculate federal fiscal responsibility, a fundamental difference is that S.2600 views federal payments as a "share of compensation" while H.R. 3210 treats the federal backstop as a loan and outlines a process for assessing the insurance industry and applying surcharges to policy holders in order to recoup a portion of the federal expenditure.      
 
2. Differences also exist between the two bills over whether the owners of commercial properties can be subject to punitive damages as a result of terrorist events.  While H.R.3210 allows for litigation related to "noneconomic damages" (e.g. physical and emotional pain), the White House issued a Statement of Administration Policy in June 2002 which stated that it would not support "any terrorism insurance bill that leaves the Nation's economy and victims of terrorist acts subject to predatory lawsuits and punitive damages."   This viewpoint is maintained as well by House Republicans.  

3.  Finally, conflicts between federal and state legislative authorities have arisen with existing legislation that maintains the establishment of insurance premium controls as a state function and also prohibits the exclusion of workers' compensation from acts of terrorism. 

Underlying this debate over the role of the private and public sectors in providing terrorism insurance is a fundamental challenge related to establishing terrorist-related "risks."  Traditionally, the insurance industry requires two conditions before coverage can be offered: the ability to identify a hazard, its probability of occurrence and its consequence; and the ability to set premiums for individual customers based on their perceived risk in relation to other customers.   The lack of empirical data related to catastrophic terrorist events, coupled with the unique and direct impact of human choice required for target selection, make the assignment of "probability" suspect at best.  Finally, the concept of "moral hazard" comes into play when the actions of the insured, such as a federal agency, can influence the probability of hazard occurrence.  
On 4 September 2002, The Real Estate Roundtable released a survey of its members in which over $15.5 billion in real estate projects, spread out over seventeen states, were either delayed or cancelled due to a lacuna in terrorism insurance.   At issue was the unwillingness of reinsurers, who provide financial coverage to primary insurers during catastrophic events, to cover terrorist-related incidents.  The Roundtable survey highlighted a shift in lobbying strategy by emphasizing the economic risk to the commercial real estate industry vice to the insurance industry, a shift necessitated by the perception that the insurance industry was lobbying for a bailout.   As a political issue, this approach may carry more political clout as Congressional legislators begin to receive direct feedback from their impacted constituents.  In the interim, while the Bush administration appears confident that market forces will eventually return insurance premiums to "normal" rates, The George Washington University, an "at risk piece of real estate," will have its $1 billion in property and casualty coverage cut in half and can expect a 15-fold increase in premium when it renews its insurance policy.     

  Summaries of the individual bills and history are available online at:  http://thomas.loc.gov.  
  Statement of Administration Policy (Washington, D.C.: OMB, June 13, 2002).  Available online at: http://www.whitehouse.gov/omb/legislative/sap/107-2/107PDFs/S2600SAP-Senate.pdf
  Jackie Spinner, "Terror Coverage Unforgotten, Unaddressed," Washington Post (27 September 2002): A10.
  Howard Kunreuther, "The Role of Insurance in Managing Extreme Events: Implications for Terrorism Coverage," Risk Analysis, Vol. 22, No. 3 (2002): 427.
  Howard Kunreuther, 429.
  "Terror Insurance Drag on Real Estate Still Climbing," The Real Estate Roundtable, News Release (19 September 2002).  Available online: http://www.rer.org.  
  Alan K. Ota and Keith Perine, "How the Real Estate Industry Rescued Terrorism Insurance Bill," Congressional Quarterly (31 August 2002): 2244.
  Spencer S. Hau, "Insurance Rates in D.C. Soar Downtown," Washington Post (13 June 2002): A01.