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Terrorism insurance is insurance purchased by property owners to cover their potential losses and liabilities that might occur due to terrorist activities.[ not verified in body ]
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.[ not verified in body ] For example, the September 11, 2001 attacks resulted in an estimated $31.7 billion loss.[ citation needed ] 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 endorsements to provide coverage.[ not verified in body ]
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.
Insurance companies are using an approach that is similar to that used with natural catastrophe risks. A Swiss report[ citation needed ] 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.
In France, a pool of insurers and reinsurers was set up on 1 January 2002 under the name Gestion de l'Assurance et de la RÉassurance des risques attentats et Actes de Terrorisme (GAREAT). GAREAT is constituted upon the principle of mutuality between its Members, all of whom are jointly liable, and relies on the support given to GAREAT by international reinsurers as well as by the French State which provides unlimited coverage to the GAREAT programme via unlimited treaties reinsured 100% by Caisse Centrale de Réassurance (CCR). As a non-profit-making Economic Interest Grouping mandated by its Members, GAREAT returns to the latter that part of the premiums which are not used to finance the reinsurance coverage at the close of each year. [1] [ citation needed ]
The Extremus Versicherung, founded in 2002, is a private company that insures terrorism risks in Germany. While the first 2.5 billion € in damages are covered by the insurance, the German government guarantees a further 6.5 billion € in insurance pay-outs.
Insurance payments related to terrorism are restricted to a billion euro per year for all insurance companies together[ citation needed ]. This regards property insurance, but also life insurance, medical insurance, etc.
The New York Times 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. [2]
In 2002, the US Congress enacted the Terrorism Risk Insurance Act, in which the government shared the cost of large insurance losses. [3]
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. [4]
Some economists have supported U.S. government subsidies of terrorism insurance. Soon after the 9/11 terrorist attacks, economist Edwin Mills expressed concern over whether private developers could build real estate without subsidies for insurance. [5] Economist David R. Barker argued that properly structured subsidies could increase overall economic efficiency. [6] Other economists have argued against these subsidies. [7] [8]
The United States insurance market offers coverage to the majority of large companies which ask for it in their policies. [9] The price of the policy depends on where the clients are residing and how much limit they buy.
According to The Economist[ citation needed ], 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 TRIREA[ citation needed ], (Terrorism Risk Insurance Revision and Extension Act). Initially TRIREA contained several new provisions including a mandatory 'make available' clause for NCBR coverage (Nuclear, Chemical, Biological and Radiological) and the ending of the distinction between domestic and foreign events.
The act expired on December 31, 2014, but was renewed at the start of the next congress, with Obama signing the extension of the TIRA through 2020 on January 12, 2015. [10] Up until the 2014 expiration, many experts warned that "construction projects could be stalled and commercial loans on shopping malls, utilities and skyscrapers could be in jeopardy." In addition, according to the Baltimore Sun, the National Football League denied rumors that it would cancel the Super Bowl over the issue. [3]
In the UK, following the Baltic Exchange bomb in 1992, all UK insurers stopped including terrorism coverage on their commercial insurance policies with effect from 1 January 1993 (home insurance policies were unaffected). As a consequence, the government and insurance industry established the Pool Reinsurance Company Ltd (Pool Re). Primarily funded by premiums paid by policyholders, the government guarantees the fund although any such support must be repaid from future premiums. To date, despite paying over £600 million in relation to thirteen separate claims, no government support has been necessary. [11]
According to the policy agenda of The Real Estate Roundtable, long-term terrorism insurance is available in the following countries:
Insurance is a means of protection from financial loss in which, in exchange for a fee, a party agrees to compensate another party in the event of a certain loss, damage, or injury. It is a form of risk management, primarily used to protect against the risk of a contingent or uncertain loss.
Political risk insurance is a type of insurance that can be taken out by businesses, of any size, against political risk—the risk that revolution or other political conditions will result in a loss.
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Vehicle insurance is insurance for cars, trucks, motorcycles, and other road vehicles. Its primary use is to provide financial protection against physical damage or bodily injury resulting from traffic collisions and against liability that could also arise from incidents in a vehicle. Vehicle insurance may additionally offer financial protection against theft of the vehicle, and against damage to the vehicle sustained from events other than traffic collisions, such as keying, weather or natural disasters, and damage sustained by colliding with stationary objects. The specific terms of vehicle insurance vary with legal regulations in each region.
Reinsurance is insurance that an insurance company purchases from another insurance company to insulate itself from the risk of a major claims event. With reinsurance, the company passes on ("cedes") some part of its own insurance liabilities to the other insurance company. The company that purchases the reinsurance policy is referred to as the "ceding company" or "cedent". The company issuing the reinsurance policy is referred to as the "reinsurer". In the classic case, reinsurance allows insurance companies to remain solvent after major claims events, such as major disasters like hurricanes or wildfires. In addition to its basic role in risk management, reinsurance is sometimes used to reduce the ceding company's capital requirements, or for tax mitigation or other purposes.
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The Terrorism Risk Insurance Act (TRIA) is a United States federal law signed into law by President George W. Bush on November 26, 2002. The Act created a federal "backstop" for insurance claims related to acts of terrorism. The Act "provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism." The Act was originally set to expire December 31, 2005, was extended for two years in December 2005, and was extended again on December 26, 2007. The Terrorism Risk Insurance Program Reauthorization Act expired on December 31, 2014.
Pool Reinsurance Company Limited, also known as Pool Re, was set up in 1993 by the insurance industry in cooperation with the UK Government in the wake of the IRA bombing of the Baltic Exchange in 1992.
Flood insurance is the specific insurance coverage issued against property loss from flooding. To determine risk factors for specific properties, insurers will often refer to topographical maps that denote lowlands, floodplains and other areas that are susceptible to flooding.
A risk pool is a form of risk management that is mostly practiced by insurance companies, which come together to form a pool to provide protection to insurance companies against catastrophic risks such as floods or earthquakes. The term is also used to describe the pooling of similar risks within the concept of insurance. It is basically like multiple insurance companies coming together to form one. While risk pooling is necessary for insurance to work, not all risks can be effectively pooled in a voluntary insurance bracket unless there is a subsidy available to encourage participation.
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