- Terrorism insurance
Terrorism insurance is
insurancepurchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities.
It is considered to be a difficult product for insurance companies, as the odds of terrorist attacks are very difficult to predict and the potential liability enormous. For example the
September 11, 2001 attacksresulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of premiums a difficult matter. Most insurance companies therefore exclude terrorism from coverage in Casualty and Property insurance, or else require endorsments to provide coverage.
On December 26, 2007, the President of the United States signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 which extends the Terrorism Risk Insurance Act (TRIA) through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism [ [http://www.treas.gov/offices/domestic-finance/financial-institution/terrorism-insurance/ U.S. Treasury - Office of Domestic Finance - Terrorism Risk Insurance Program ] ] .
The United States insurance market offers coverage to the majority of large companies which ask for it in their polices [ [http://www.pciaa.net/sitehome.nsf/lcpublic/] Alliance of American Insurers (AAI) study] . The price of the policy depends on where the clients are residing and how much limit they buy.
Concentration of risk is another factor in determining availability for terrorism insurance. Due to the concentrated losses of the
World Trade Center, carriers were hit with large losses in one centralized location. Insurers seek to spread the coverage over a wider geographic area than as with other aggregate perils, such as flood.
Modeling the Risks
Insurance companies are using an approach that is similar to that used with natural catastrophe risks. A Swiss Re report suggested that in this case where demand is greater than the supply for terrorism coverage that a short-term solution is possible: a mix of government and private resource to make easy the transition. In this situation, the government would serve two functions: to establish rules to overcome the capacity shortage and to be the insurer of last resort.
Crisis managementplanning can save large amounts money in the long run. According to expertsFacts|date=November 2007, for every dollar spent on developing crisis management plan a head of time, $7 is saved in losses when a disaster comes.
Insurancepayments related to terrorismare restricted to a billion euro per year for all insurance companies togetherFacts|date=November 2007. This regards property insurance, but also life insurance, medical insurance, etc.
According to "The Economist"Facts|date=November 2007, one of the best studies to understand TRIA has been the one undertaken in 2005 by the Center for Risk Management at the Wharton Business School ("TRIA and Beyond"; available on their website below).
In mid-2007 the idea of another extension to TRIA was tabled and is officially known as TRIREAFacts|date=November 2007, (Terrorism Risk Insurance Revision and Extension Act). Initially TRIREA contained several new provisions including a mandatory 'make available' clause for NCBR coverge (Nuclear, Chemical, Biological and Radiological) and the ending of the distinction between domestic and foreign events.
New York TimesFacts|date=November 2007 reports that in Baghdad personal terrorism insurance is available. One company offers such insurance for $90, and if the customer is a victim of terrorism in the next year, it pays the heirs $3,500.
Countries With Long-Term Terrorism Insurance Programmes
According to the [http://www.rer.org/politicalaction/index.cfm policy agenda] of
The Real Estate Roundtable, the following countries are the only ones in the world with long-term terrorism insurance.
Geneva Association, The(also known as the International Association for the Study of Insurance Economics)
* For a detailed 170 page study of the insurance of war, terrorism and other political perils see [http://www.clydeco.com/services/expertise/insuranceandreinsurance/legal-guides.cfm?contentID=2135 War Risks and Terrorism] a new (October 2007) Research Study Group Report from the Insurance Institute of London, authored by Hermes Marangos, [http://www.clydeco.com/people/andrewtobin/ Andrew Tobin] , Kathleen Leslie of law firm [http://www.clydeco.com/ Clyde & Co]
* [http://www.iii.org/media/facts/statsbyissue/catastrophes/ Catastrophes] from the
Insurance Information Institute(Scroll down half way to see a break down of 9/11 losses)
* [http://dx.doi.org/10.1057/palgrave.gpp.2510009 Terrorism Risk Coverage in the Post-9/11 Era: A Comparison of New Public–Private Partnerships in France, Germany and the U.S.] (Wharton's authors)
* [http://www.genevaassociation.org/books.htm Insurance and September 11 - One Year After: Impact, Lessons and Unresolved Issues] , edited by Patrick M. Liedtke and Christophe Courbage (The Geneva Association)
* [http://www.atypon-link.com/AEAP/doi/pdf/10.1257/0895330042632717 Policy Watch: Challenges for Terorrism Risk Insurance in the United States] (Wharton's authors)
* [http://www.riskandinsurance.com/0702choice.asp Terrorism Insurance: Where's the coverage?]
* [http://www.forbes.com/2005/07/12/terrorism-insurance-security-cz_jl_0712opinion_print.html America Needs Terrorism Insurance]
* [http://www.cato.org/pubs/regulation/regv28n1/v28n1-8.pdf Terrorism Insurance: Where Do We Go from Here?] (Wharton's authors)
* [http://www.beechunderwriting.co.uk Beech Underwriting]
* [http://www.rer.org Real Estate Roundtable]
* [http://www.blackwell-synergy.com/doi/pdf/10.1111/j.1745-6622.2006.00112.x Morgan Stanley's "J.A. Corp. Finance" on Terrorism Insurance Market(s)] (Wharton's authors)
* [http://www.insureagainstterrorism.org CIAT: Coalition to Insure Against Terrorism]
* [http://opim.wharton.upenn.edu/risk/projects/terrorins.html Wharton Risk Center on Terrorism Insurance Markets]
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