Final answer:
The US insurance industry was engaged in passive retention of terrorism risk before 9/11 because they had not identified or quantified the risk. After the attacks, the industry excluded terrorism, resulting in businesses actively retaining the risk. The correct answer to the question is 'b) Passive; Active'.
Step-by-step explanation:
Before the terrorist attacks on 9/11/2001, the US insurance industry had not fully recognized or quantified the risks associated with terrorism, thus they were engaged in passive retention of the terrorism risk. Passive retention refers to the risks that are retained by default because they are not identified, not fully understood, or insurance coverage is not purchased or available.
Immediately after the terrorist attacks, the insurance industry excluded terrorism from property insurance policies. This shift effectively forced businesses to engage in active retention of the terrorism risk. Active retention means that a business or individual consciously decides to retain the risk, knowing that the insurance is either too costly or not offered for the specific risk.
Therefore, the correct answer to the student's question is 'b) Passive; Active', since before 9/11, the risk was unknowingly retained (Passive), and after 9/11, businesses had to knowingly accept the risk due to lack of coverage (Active).