Evaluating Alternatives for Renewing TRIA in an Uncertain World

F ollowing the 9/11 attacks, Congress passed the Terrorism Risk Insurance Act (TRIA) of 2002, which established a temporary federal terrorism-risk insurance program. Th e act provided a system of shared public and private payments for insured commercial property and casualty losses due to acts of terrorism. Congress amended TRIA in 2005 and extended the program at the end of 2007 for seven years without major changes in program structure. To inform the 2007 debate about whether and how TRIA should be extended, RAND Corporation researchers assessed options for modifying the program, including allowing the program to expire. Evaluating the advantages and disadvantages of diff erent approaches was challenging, because many diffi cult-to-analyze uncertainties underlie the analysis. For example, what would be the frequency and type of attack— conventional versus nuclear, biological, chemical, or radiological (NBCR)? What proportion of businesses would take up insurance coverage for property losses from terrorist attacks under different government interventions in the terrorisminsurance market? To what extent would the government provide compensation to businesses that fail to purchase terrorism insurance? Under such conditions, policymakers want strategies that perform reasonably well relative to alternatives over a wide range of plausible futures. Th e RAND analysis assessed policy options for renewing TRIA with a quantitative tool that uses computer simulation to assess the performance of these options over a large number of plausible futures.