Dealing with Extreme Events: Challenges for Terrorism Risk Coverage in the United States
The terrorist attacks on September 11, 2001 (9/11) against the United States as well as other large-scale attacks worldwide raises the fundamental question as to what are the responsibilities of the public and private sectors in reducing the risks of terrorist attacks and who should pay for future losses should the terrorists be successful? In the aftermath of the 9/11 attacks, which inflicted more than 35 billion dollars of insured losses, many insurers warned that another event of comparable magnitude could do irreparable damage to the industry. Furthermore, they contended that the uncertainties surrounding terrorism risk were so significant that it was, in fact, an uninsurable risk. By early 2002, 45 states in the U.S. permitted insurance companies to exclude terrorism. The Terrorism Risk Insurance Act of 2002 (TRIA), which provides for up to $100 billion of terrorism insurance, was passed by U.S. Congress on November 26, 2002 and signed into law by President Bush the following month. The Act, based on risk sharing between the insurance industry and federal government, expires on December 31, 2005. Currently it is unclear what type of terrorism insurance program will emerge in the United States after 2005. Given the developments since September 11th and the specific characteristics of large-scale international terrorism, we contend that government needs to continue to play an important role in concert with the private sector in providing insurance against losses from this type of extreme event. However, as we suggest in this paper, TRIA may not be the most desirable way for the federal government to assist the private sector in providing insurance against terrorism. As a sustainable terrorism insurance program is a key component of any national strategy for homeland security and that it is still on the agenda in the United States, this papers aims at providing a discussion on several alternatives. It suggests a specific national program for covering firms operating in the U.S. against terrorism when TRIA expires.
|Date of creation:||2004|
|Note:||View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00242930|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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.:
- Doherty, Neil A & Posey, Lisa Lipowski, 1997. "Availability Crises in Insurance Markets: Optimal Contracts with Asymmetric Information and Capacity Constraints," Journal of Risk and Uncertainty, Springer, vol. 15(1), pages 55-80, October.
- Kunreuther, Howard & Heal, Geoffrey, 2003. "Interdependent Security," Journal of Risk and Uncertainty, Springer, vol. 26(2-3), pages 231-49, March-May.
- 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.
- Ralph A. Winter, 1991. "The Liability Insurance Market," Journal of Economic Perspectives, American Economic Association, vol. 5(3), pages 115-136, Summer.
- Lapan, Harvey E & Sandler, Todd, 1988.
"To Bargain or Not to Bargain: That Is the Question,"
American Economic Review,
American Economic Association, vol. 78(2), pages 16-21, May.
- Lapan, Harvey E. & Sandler, Todd, 1988. "To Bargain or Not to Bargain: That is the Question," Staff General Research Papers Archive 10817, Iowa State University, Department of Economics.
- Kenneth A. Froot & Paul G.J. O'Connell, .
"On the Pricing of Intermediated Risks: Theory and Application to Catastrophe Reinsurance,"
Center for Financial Institutions Working Papers
97-24, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Froot, Kenneth A. & O'Connell, Paul G.J., 2008. "On the pricing of intermediated risks: Theory and application to catastrophe reinsurance," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 69-85, January.
- Kenneth A. Froot & Paul G. J. O'Connell, 1997. "On The Pricing of Intermediated Risks: Theory and Application to Catastrophe Reinsurance," NBER Working Papers 6011, National Bureau of Economic Research, Inc.
- Lee, Dwight R, 1988. "Free Riding and Paid Riding in the Fight against Terrorism," American Economic Review, American Economic Association, vol. 78(2), pages 22-26, May.
- Kent Smetters, 2005. "Insuring Against Terrorism: The Policy Challenge," NBER Working Papers 11038, National Bureau of Economic Research, Inc.
- Cummins, J. David & Danzon, Patricia M., 1997. "Price, Financial Quality, and Capital Flows in Insurance Markets," Journal of Financial Intermediation, Elsevier, vol. 6(1), pages 3-38, January.
- Walter Enders & Todd Sandler, 2000. "Is Transnational Terrorism Becoming More Threatening?," Journal of Conflict Resolution, Peace Science Society (International), vol. 44(3), pages 307-332, June.
- Kunreuther, Howard, 1996. "Mitigating Disaster Losses through Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 171-87, May.
When requesting a correction, please mention this item's handle: RePEc:hal:wpaper:hal-00242930. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)
If references are entirely missing, you can add them using this form.