Beyond the unfathomable evil perpetrated on April 15 in Boston—human losses that can never be measured—come the more mundane, quantifiable aspects of the mayhem of which the Tsarnaev brothers are suspected.
News reports that the generosity of a taxpayer-financed state welfare program was supporting at least one of the brothers for years is just one facet of the financial picture, but there is another far more diffuse angle that affects Americans nationwide: that is the financial risk that recurring acts of terror pose to the lives, property and businesses of ordinary Americans.
The businesses near the site of the Boston Marathon terror attack were mostly small shops and restaurants that lack terrorism insurance, a new category of coverage stemming from the 9/11 attacks.
Prior to 9/11, terror-caused property damage would have been covered without specific customer costs. But the destruction in New York alone added up in the tens of billions of dollars, leading insurers to exclude the effects of terror from their coverage.
To avoid wider economic losses after 9/11, Congress stepped in with a law—the Terrorism Risk Insurance Act of 2002—that would limit insurance company losses in the event of an act of terrorism involving high losses.
Under the law, which has since been renewed and expires at the end of next year—foreign terror attacks costing under $100 million are paid entirely by insurance companies; a financial hit over that threshold but under $27.5 billion means the government pays and is reimbursed over time by insurance companies, whereas a terror attack involving aggregate losses of $27.5 billion the Secretary of the Treasury has discretion to seek or wave recovery of its payment for losses.
There are other details, including deductibles and cost-sharing, but the basic idea is that the government—meaning the taxpayers—are bearing the financial risk of massive terrorism.
Advocates of TRIA, which include insurance executives such as Ace Ltd.’s Evan Greenberg, say government involvement in a reinsurance role is necessary or else insurers would not take the risk and businesses could not obtain terror insurance.
Indeed, terror coverage was largely unavailable for the year following 9/11 until passage of TRIA, according to a Congressional Research Service study of the terror insurance market published in February.