Political Impacts on Terror Insurance
Wharton has a continuing focus on insurance and terrorism reflected in the research of its faculty. A February 2004 working paper by Prof. Kent Smetters, "Insuring Against Terrorism: The Policy Challenge" is at his listing of Working Papers.
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In it, Prof. Smetters compares the increasing government role in providing back-stop insurance against natural catastrophes such as massive hurricanes or earthquakes to the developing government role in insurance against terrorist acts. He argues that government must take some blame for the challenges facing private insurers considering another catastrophic terrrorist event such as that of September 11, 2001.
His paper includes:
a useful review of the state of terrorism coverage before and after 9/11/01, with case citations,
a discussion of the "war" exclusion in the context of presidential statements and the status of the Taliban as de facto rulers of the nation of Afghanistan,
discussion of the insurance market reaction to 9/11/01, including lobbying for a government "backstop,"
discussion of the passage, provisions and likely future of the Terrorism Risk Insurance Act (TRIA) of 2002 and the abandoned "Pool Re" alternative,
an argument that terrorism insurance may not be economically efficient for businesses,
a review and discussion of literature regarding the effect of various government policies on the ability of the insurance industry to absorb major catastrophic losses, including state regulation of risk securitization and questions about state/federal jurisdiction over such securities raised by application of the Pireno test,
consideration of the impact of asymmetric information (government v. private sector) as a potential justification for government involvement (with a caveat about its efficiency in running PBGC, FISLC and FEMA),
an argument for mandatory coverage as an alternative to subsidized coverage.
DougSimpson.com/blog
Posted by dougsimpson at June 4, 2004 08:07 AM
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