Terrorism Risk Coverage in the Post-9/11 Era: A Comparison of New Public–Private Partnerships in France, Germany and the U.S.

Michel-Kerjan, Erwann; Pedell, Burkhard

doi:10.1057/palgrave.gpp.2510009

Cited by 31 publications

(13 citation statements)

References 13 publications

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“…A premium is collected for the government reinsurance, which is remitted to the government. GAREAT is set to expire at the end of 2006 (Michel-Kerjan and Pedell, 2005).…”

Section: Cummins F E D E R a L R E S E Rv E B A N K O F St Lo U I S mentioning

confidence: 99%

Should the Government Provide Insurance for Catastrophes?

Cummins¹

2006

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The increasing costs of catastrophes have significantly stressed insurance markets. Insurance works best for high-frequency, low-severity events, which are statistically independent and have probability distributions that are reasonably stationary over time. Catastrophic events, and particularly mega-catastrophes such as Katrina and the WTC terrorist attack, violate to some degree nearly all of the standard conditions for insurability. These are low-frequency, high-

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“…A premium is collected for the government reinsurance, which is remitted to the government. GAREAT is set to expire at the end of 2006 (Michel-Kerjan and Pedell, 2005).…”

Section: Cummins F E D E R a L R E S E Rv E B A N K O F St Lo U I S mentioning

confidence: 99%

Should the Government Provide Insurance for Catastrophes?

Cummins¹

2006

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“…9 The main responsibility of the government is to provide flood protection. Because of the low market penetration 7 Michel-Kerjan and Pedell (2005). 8 Botzen and van den Bergh (2008).…”

Section: General Characteristicsmentioning

confidence: 99%

A Comparative Study of Public—Private Catastrophe Insurance Systems: Lessons from Current Practices

Paudel¹,

Botzen²,

Aerts³

2012

Geneva Pap Risk Insur Issues Pract

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Natural disasters risk is increasing in several regions around the world as a result of socioeconomic development and climate change. This indicates the importance of establishing affordable and sustainable natural disaster risk management and compensation arrangements. Given the complexity of insuring extreme risks, insurers and governments often cooperate in catastrophe insurance systems. This paper presents a comparative study of the main components and a broad range of indicators of fully private and fully public, as well as public-private (PP) insurance systems, for extreme events, in ten countries. This analysis results in the following nine main recommendations for policymakers who aim to establish new, or improve existing, insurance arrangements for natural disasters: (1) mandatory participation requirements are advisable to achieve a high market penetration rate; (2) adequate monitoring and enforcement mechanisms need to be put in place to ensure compliance with these requirements; (3) the government needs to take responsibility for part of the (extreme) damage in order to keep an insurance system financially viable and affordable; (4) private insurance companies should participate in a PP insurance scheme by selling and administering policies and by covering medium-sized losses; (5) the integration in systems of risk transferring mechanisms is advisable; (6) it is advisable that governments stimulate the building-up of insurers' reserves by providing tax exemptions; (7) risk mitigation policies should be carefully integrated in a natural disaster insurance system; (8) a detailed assessment and mapping of risk provides the basis for an effective mitigation policy; (9) insurance should provide financial incentives for policyholders to take risk mitigation measures.

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“…The design of a terrorism insurance program reflects society's view as to who should pay for the losses from the next attack 69 . Hurricane Katrina is likely to impact on how citizens, firms and policymakers envision the role and responsibility of the public and private sectors in providing adequate protection to victims of large-scale disasters and the importance of understanding how actions taken before a disaster impacts on the need for financial assistance after a catastrophic event occurs 70 .…”

Section: Discussionmentioning

confidence: 99%

Looking Beyond TRIA: A Clinical Examination of Potential Terrorism Loss Sharing

Kunreuther¹,

Michel-Kerjan²

2006

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The Terrorism Risk Insurance Act of 2002 (TRIA) established a public-private program to cover commercial enterprises against foreign terrorism on US soil. It was a temporary measure to increase the availability of risk coverage for terrorist acts by requiring insurers to provide coverage. Initially established to sunset on December 31, 2005, a two-year extension has been voted by Congress and signed by the President in December. This paper provides an extensive series of empirical analyses of loss sharing under this program in 2005, and a prospective analysis for 2006. Using data collected on the top 451 insurers operating in the United States, we examine the impact of TRIA on loss sharing between the key stakeholders: victims, insurers and their policyholders, and the taxpayers. By simulating the explosion of a 5-ton truck bomb in major cities in the United States, we conclude that taxpayers are likely not to pay anything for losses below $15 billion. For a $25 billion loss, insurers and policyholders would handle between 80 and 100 percent of the loss depending on the property take up rate. Only for terrorist attacks where insured losses were $100 billion would taxpayers have to pay 50 percent of the claims. Recent modifications of TRIA will transfer an even larger part of the risk to the private sector. We also show that if TRIA were made permanent in its current form some very large insurers could strategize by collecting large amount of premiums for terrorism insurance but only would be financially responsible for a small portion of the claims. Commercial policyholders from all insurers (whether or not covered against terrorism) and the federal government would absorb the residual insured losses, raising equity issues. The paper also reviews a set of possible long-term alternatives or complementary options to the current design of TRIA that could be important features of a more permanent program. We conclude that more than four years after 9/11, the question as to who should pay for the economic consequences of a terrorist attack on the US has not yet received the attention it deserves. Congress or the White House should consider establishing a national commission on terrorism risk coverage before permanent legislation is enacted. This paper provides an extensive series of empirical analyses of loss sharing under this program in 2005, and a prospective analysis for 2006. Using data collected on the top 451 insurers operating in the United States, we examine the impact of TRIA on loss sharing between the key stakeholders: victims, insurers and their policyholders, and the taxpayers. By simulating the explosion of a 5-ton truck bomb in major cities in the United States, we conclude that taxpayers are likely not to pay anything for losses below $15 billion. For a $25 billion loss, insurers and policyholders would handle between 80 and 100 percent of the loss depending on the property take up rate. Only for terrorist attacks where insured losses were $100 billion would taxpayers have to pay 50 percent o...

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Terrorism Risk Coverage in the Post-9/11 Era: A Comparison of New Public–Private Partnerships in France, Germany and the U.S.

Cited by 31 publications

References 13 publications

Should the Government Provide Insurance for Catastrophes?

Should the Government Provide Insurance for Catastrophes?

A Comparative Study of Public—Private Catastrophe Insurance Systems: Lessons from Current Practices

Looking Beyond TRIA: A Clinical Examination of Potential Terrorism Loss Sharing

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