How Insurance Companies Exploited 9/11

Whereas one of the consequences of 9/11 was the curtailing of the freedom of the people in the United States by the imposition of new laws and sanctions, that same event freed Congress to do all sorts of things that no one in his or her right mind would have ever dreamed of permitting it to do prior to that infamous date. One of the manifestations of this new found Congressional freedom was the Terrorism Risk Insurance Act of 2002.

9/11 cost insurance companies in excess of $40 billion, which was more than any single loss they had suffered prior to that day. They disliked sustaining such enormous losses and out of self-interest decided the government should do something to make sure they never again sustained such losses.

At first blush it seems odd that insurance companies would ask the government to butt into their internal affairs. Insurance companies are big business and big business takes pride in the free market system that works best when government intervenes least in the lives of people and corporations. The insurance companies were willing to make an exception in this case, however, because what they were asking affected their profit margins (so they said) and big business is willing to look the other way when it is asking the government to do things that makes them wealthy. (So are individuals who hold themselves out as being conservatives but that is not relevant to today’s topic.)

The insurance companies said that without help from Congress (by which they meant the taxpayers,) insurance companies would decline to offer terrorism coverage to companies. They were not the least bit embarrassed to say this to Congress. 9/11 had nothing to do with something the big insurance companies did wrong and therefore, they concluded, it was not inconsistent with their general aversion to having the government get involved in their affairs, for them to go to Congress and ask for help And help they got. It was called the Terrorism Risk Insurance Act of 2002.

The Act provides that in the event of another terrorist attack insurance companies will be required to pay the first $10 billion in losses. In addition, in 2003 insurance companies will be responsible for paying a deductible equal to 7 percent of the premiums received the previous year. The deductible rises to 10 percent in 2004 and 15 percent in 2005. Above that the taxpayers are required to participate in future losses by paying 90 percent of all losses in excess of more than $10 billion up to a maximum of $90 billion. In 2004 the taxpayers’ obligation drops to $87.5 billion and in 2005 it drops to $85 billion. There are other provisions but space does not permit their description with one exception. That exception is this. In 2005 the Act expires. That is something the insurance industry fears even more than another terrorist attack.

To allay its fears it contributed $36 million to people running for office in the last election and now hopes that the good people to whom it gave money will return the favor by leaving the 2002 Terrorism Risk Insurance Act in place and improving on it. It wants the act to apply to life insurance and to cars and houses as well as to companies. The industry says it cannot afford another 9/11 notwithstanding the following fact. According to the Consumer Federation of American, insurers reported a 66.4 percent increase in profits in the first six months of 2002 thus suggesting the consequences of 9/11 were not as dire for them as they were for thousands of others.

The companies are not so crass as to suggest that they need the protection because a 66.4 percent increase in profits (after paying out more than $40 billion in claims) was inadequate. Instead they explain that unless the government lets taxpayers become coinsurers against terrorism losses, the companies will be unwilling to write insurance against terrorist attacks and the taxpayers will be the losers. That is a dismal prospect for the taxpayer and the government and the Congress.

CHRISTOPHER BRAUCHLI is a lawyer in Boulder, Colorado. He can be reached at: or through his website:


















Christopher Brauchli can be e-mailed at For political commentary see his web page at