I believe the idea of "terror insurance" is a bad one. It would take a long article to explain in detail why, and, depending on the level of economic knowledge of a reader, it might even take a book on basic economics.
Fortunately, there are good articles and books on the subject. Here is a review of a book I like. *) As for the article, Gene Callahan, the reviewer, published an excellent article explaining economic fallacies calling for "temporary" government interventions, which are based on similar arguments as the “terror insurance” for buildings. The closest topic to the “terror insurance” discussed in the article is the bail-out of the airlines by the Federal Government.
As for the terror “insurance,” the 9/11 mass murder caused market participants to adjust their assessments of the risks of constructing and using high-rise buildings. According to the markets, i.e. to the opinion of the people who vote with their money, allocation of resources to the real estate development in high-risk areas will increase risks of future casualties.
To put it simpler, people recognize that those who own such buildings, as well as those who work or live in them, risk their lives and/or their assets more than those people who own, work, or live in low buildings. Those companies that are still building in the middle of Manhattan, downtown Chicago, or other areas of high risk of terror attacks, according to this opinion are increasing the risks of new attacks and higher casualties, while the companies that are constructing low buildings in the areas less targeted by the terrorists are decreasing the overall risks of such casualties.
By providing “insurance” in such cases, Government forces resource reallocation in the construction businesses. Ironically, the Government will obtain the money for this action from the very same people whose lives will be put at greater risk as a result of the “insurance.”
As there are not enough statistics to estimate the mean losses from terrorist attacks, private insurers are unable to calculate the right prices for the insurance of such buildings. Therefore, they consider insurance (the term is defined here, or, in other words, the business of statistically managing known risks ) not applicable to the situation. The “terror insurance” by the Government is not insurance at all in the accepted definition of the term. It is just an income redistribution program aimed at “saving” the construction industry in the same way the government tried to “save” the airlines.
I believe that the best “insurance” by the government against terrorists is a success in fighting them and in protecting the country against them.
One good thing about this bill was that it was supposed to restrict the size of "punitive" damages (a pure anti-economic concept in the lawyer's set of tools).
*) It is a pity that this clear and concise book, written with a layman in mind, is not a standard economics textbook for the secondary school. This country would have been significantly different had most people been familiar with the “toolbox” of fallacies that has been “in the public domain” for centuries, but is still successfully used by both dirty and well intentioned politicians to bring repeating damages upon the economy. Some of the book's weaknesses are commented upon by the reviewer, but they are hardly significant for a novice, and the review points out the directions for further learning.