If religiously-motivated terrorists attack, they may claim it is an Act of God. You had better hope your insurance company does not. To insurance companies, an act of God is any event not influenced by man and minimum coverage often does not include it.

Because of the fuzzy nature of those definitions, there is specific terrorism insurance. But after Muslim fundamentalists hijacked and crashed planes on Sept. 11, 2001, terrorism risk insurance quickly became very expensive or unavailable. Congress reacted by passing the Terrorism Risk Insurance Act, which provides an assurance of government support after a catastrophic attack. This kept terrorism risk insurance cheaper for businesses without crippling insurers.

The program will expire at the end of this year and Congress is reconsidering its role in terrorism insurance markets. The advocacy group RAND Corporation drafted a new analysis which determined that Federal spending after future terrorist attacks on the United States may be higher if the nation's terrorism risk insurance program is allowed to expire.

They estimate that in a terrorist attack, with losses up to $50 billion, the federal government would spend more helping to cover losses than if it had continued to support a national terrorism risk insurance program.

The act creates an incentive for a functioning private terrorism insurance market through the promise of government support for losses that exceed a specified amount. This keeps terrorism insurance available with essentially no government spending unless terrorism losses reach catastrophic levels. Without the program, terrorism insurance would become less available and more attack losses would go uninsured, increasing demand for disaster assistance, said Tom LaTourrette, lead author of the paper and senior analyst at RAND, who wrote the report with Noreen Clancy.

For simulated attacks with losses ranging from $14 billion to $26 billion, their estimates were that the federal government would spend from $1.5 billion to $7.2 billion more without the program than with it.

The federal government makes no net expenditures through the program until the insured loss reaches at least $27.5 billion. For comparison, at current terrorism insurance coverage rates, an attack equivalent to the 9/11 attacks would have an insured loss of about $30 billion today. Taxpayers would therefore only contribute through the program in an attack comparable in magnitude to the 9/11 attacks, which is the second most costly insurance event in United States history, exceeded only by Hurricane Katrina.

When considering both disaster assistance and spending through the program, they believe the impact of the program on federal spending reverses when total losses exceed about $50 billion. For losses below this amount, the federal government would pay more without the program; for larger losses, the federal government could pay less without the program, according to the study.

Source: RAND Corporation