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Supply and Demand for Terrorism Insurance: Lessons from Germany

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Author Info
Thomann, Christian
Schulenburg, J.-Matthias
Abstract

In our article we consider insurance as a means of allocating terrorism risk. Terrorism poses a significant challenge for insurers worldwide. In terms of possible losses it fits into the same category as earthquakes and hurricanes. Yet as a result of the uncertainty surrounding these risks private markets face significant difficulties in providing insurance for it. In the insurance industry costly risk bearing can explain the supply of capacity risks. Corporate risk management theory provides reasons why transaction costs can motivate firms to purchase insurance. In the context of these tightly connected theories we derive models for both the supply of terrorism reinsurance and the demand for terrorism insurance. Using two datasets from the German terrorism insurer we estimate models on how corporations in Germany employ government sponsored insurance to manage their terrorism risk and on the factors that determine the supply for private market terrorism reinsurance.

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Publisher Info
Paper provided by Universität Hannover, Wirtschaftswissenschaftliche Fakultät in its series Diskussionspapiere der Wirtschaftswissenschaftlichen Fakultät der Universität Hannover with number dp-340.

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Length: 22 pages
Date of creation: Jun 2006
Date of revision:
Handle: RePEc:han:dpaper:dp-340

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Related research
Keywords: Terrorism Insurance; Risk Allocation; Regulation;

Other versions of this item:

Find related papers by JEL classification:
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure
D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  2. Stulz, Ren? M., 1984. "Optimal Hedging Policies," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 19(02), pages 127-140, June. [Downloadable!]
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  8. Doherty, Neil A & Lamm-Tennant, Joan & Starks, Laura T, 2003. " Insuring September 11th: Market Recovery and Transparency," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 179-99, March-May. [Downloadable!] (restricted)
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  12. Mayers, David & Smith, Clifford W, Jr, 1990. "On the Corporate Demand for Insurance: Evidence from the Reinsurance Market," Journal of Business, University of Chicago Press, vol. 63(1), pages 19-40, January. [Downloadable!] (restricted)
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