Working Paper: NBER ID: w10870
Authors: 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.
Keywords: No keywords provided
JEL Codes: H56; G22; G28
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Terrorism Risk Insurance Act (TRIA) (H12) | insurance industry's response to terrorism coverage (G52) |
| TRIA's expiration (G52) | insurers raise premiums or withdraw from the market (G52) |
| significant losses from September 11 attacks (F69) | passage of TRIA (R48) |
| demand for terrorism insurance (G52) | perceived likelihood of future attacks (F52) |
| economic implications of terrorist events (F69) | demand for terrorism insurance (G52) |
| failure of one entity to invest in protective measures (H84) | ripple effects across the insurance system (G22) |