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Policy Watch: Challenges for Terrorism Risk Insurance in the United States

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  • Howard Kunreuther
  • Erwann Michel-Kerjan

Abstract

This paper examines the role that insurance has played in dealing with terrorism before and after September 11, 2001, by focusing on the distinctive challenges associated with terrorism as a catastrophic risk. The Terrorism Risk Insurance Act of 2002 (TRIA) was passed by the U.S. Congress in November 2002, establishing a national terrorism insurance program that provides up to $100 billion commercial coverage with a specific but temporary risk-sharing arrangement between the federal government and insurers. TRIA's three-year term ends December 31, 2005, so Congress soon has to determine whether it should be renewed, whether an alternative terrorism insurance program should be substituted for it, or whether insurance coverage is left solely in the hands of the private sector. As input into this process, the paper examines several alternatives and scenarios, and discusses their potential to create a sustainable terrorism insurance program in the Unites States.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10870.

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Date of creation: Nov 2004
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Publication status: published as Kunreuther, Howard and Erwann Michel-Kerjan. "Challenges For Terrorism Risk Insurance In The United States," Journal of Economic Perspectives, 2004, v18(4,Fall), 201-214.
Handle: RePEc:nbr:nberwo:10870

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  1. Kunreuther, Howard & Heal, Geoffrey, 2003. " Interdependent Security," Journal of Risk and Uncertainty, Springer, Springer, vol. 26(2-3), pages 231-49, March-May.
  2. Kent Smetters, 2005. "Insuring Against Terrorism: The Policy Challenge," NBER Working Papers 11038, National Bureau of Economic Research, Inc.
  3. Lapan, Harvey E. & Sandler, Todd, 1988. "To Bargain or Not to Bargain: That is the Question," Staff General Research Papers, Iowa State University, Department of Economics 10817, Iowa State University, Department of Economics.
  4. Sandler, Todd & Enders, Walter, 2004. "An economic perspective on transnational terrorism," European Journal of Political Economy, Elsevier, Elsevier, vol. 20(2), pages 301-316, June.
  5. Erwann Michel-Kerjan & Burkhard Pedell, 2005. "Terrorism Risk Coverage in the Post-9/11 Era: A Comparison of New Public–Private Partnerships in France, Germany and the U.S.*," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, Palgrave Macmillan, vol. 30(1), pages 144-170, January.
  6. Doherty, Neil A & Lamm-Tennant, Joan & Starks, Laura T, 2003. " Insuring September 11th: Market Recovery and Transparency," Journal of Risk and Uncertainty, Springer, Springer, vol. 26(2-3), pages 179-99, March-May.
  7. Lee, Dwight R, 1988. "Free Riding and Paid Riding in the Fight against Terrorism," American Economic Review, American Economic Association, American Economic Association, vol. 78(2), pages 22-26, May.
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Cited by:
  1. Zaneta Chapman & Thomas Getzen, 2012. "Hazardous immorality: strategic externalization of risk and credit pricing," Journal of Risk Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 13(4), pages 381-391.
  2. Howard Kunreuther & Geoffrey Heal, 2012. "Managing Catastrophic Risk," NBER Working Papers 18136, National Bureau of Economic Research, Inc.
  3. Kunreuther, Howard & Michel-Kerjan, Erwann, 2012. "Impact of behavioral issues on green growth policies and weather-related disaster reduction in developing countries," Policy Research Working Paper Series, The World Bank 6241, The World Bank.
  4. Erwann Michel-Kerjan & Burkhard Pedell, 2007. "How Does the Corporate World Cope with Mega-Terrorism? Puzzling Evidence from Terrorism Insurance Markets," Working Papers, HAL hal-00243051, HAL.
  5. Erwann Michel-Kerjan & Paul Raschky & Howard Kunreuther, 2011. "Corporate Demand for Insurance: An Empirical Analysis of the U.S. Market for Catastrophe and Non-Catastrophe Risks," NBER Working Papers 17403, National Bureau of Economic Research, Inc.
  6. Daina McDonald, 2006. "150 Issues of The Australian Economic Review: The Changing Face of a Journal over Time," Melbourne Institute Working Paper Series, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne wp2006n01, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  7. W. Viscusi, 2009. "Valuing risks of death from terrorism and natural disasters," Journal of Risk and Uncertainty, Springer, Springer, vol. 38(3), pages 191-213, June.
  8. Kessler, Denis, 2008. "Insurance market mechanisms and government interventions," Journal of Banking & Finance, Elsevier, Elsevier, vol. 32(1), pages 4-14, January.
  9. Siqueira, Kevin & Sandler, Todd, 2007. "Terrorist backlash, terrorism mitigation, and policy delegation," Journal of Public Economics, Elsevier, Elsevier, vol. 91(9), pages 1800-1815, September.
  10. Howard C. Kunreuther & Erwann O. Michel-Kerjan, 2007. "Evaluating The Effectiveness of Terrorism Risk Financing Solutions," NBER Working Papers 13359, National Bureau of Economic Research, Inc.
  11. S. T. M. Straetmans & W. F. C. Verschoor & C. C. P. Wolff, 2008. "Extreme US stock market fluctuations in the wake of 9|11," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 23(1), pages 17-42.

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