Distribution of Losses from Large Terrorist Attacks Under the Terrorism Risk Insurance Act (2005)

by Carroll, Stephen J.; LaTourrette, Tom; Chow, Brian G.; Jones, Gregory S.; Martin, Craig

• ISBN13: 9780833038654
• ISBN10: 0833038656
• Edition: 1st
• Format: Paperback
• Copyright: 2005-12-21
• Publisher: RAND CORPORATION

Summary

The pending expiration of the Terrorism Risk Insurance Act (TRIA) of 2002 is the impetus for this assessment of how TRIA redistributes terrorism losses, helping to inform policymakers on whether to extend, modify, or terminate it.

Table of Contents

The RAND Center for Terrorism Risk Management Policy (CTRMP)	iii
Center for Terrorism Risk Management Policy Advisory Board	v
Preface	vii
Figures	xiii
Tables	xv
Summary	xvii
Acknowledgments	xxxv
CHAPTER ONE Introduction	1	(6)
Background	1	(2)
Research Approach	3	(2)
Organization of This Book	5	(2)
CHAPTER TWO The Terrorism Risk Insurance Act	7	(8)
Overview	7	(3)
Distribution of Losses Under 'FRIA	10	(5)
Insurance Availability and Take-Up	11	(1)
TRIA Eligibility	11	(1)
Deductibles and Co-Payments	12	(1)
Aggregate Insurance Marketplace Retention	12	(1)
Coverage Ceiling	13	(2)
CHAPTER THREE Terrorist Attack Scenarios	15	(8)
Attack Scenarios	16	(2)
Aircraft Impact	16	(1)
Indoor Anthrax Release	17	(1)
Outdoor Anthrax Release	17	(1)
Losses and Compensation by Insurance Line	18	(5)
CHAPTER FOUR The Distribution of Terrorist Attack Losses Under TRIA	23	(20)
Uninsured Loss	23	(1)
Life and Health Insurer Loss	23	(1)
TRIA-Covered Loss	24	(1)
Target Insurer Loss	25	(4)
Aggregate Insurance Industry Annual TRIA Deductible	25	(4)
Aggregate Insurer Co-Payment	29	(1)
Distribution of Losses Under TRIA	29	(11)
TRIA Loss Distributions for the Three Scenarios	30	(3)
TRIA Loss Distributions for Cumulative Annual Losses	33	(7)
TRIA Loss Distribution Regimes	40	(3)
CHAPTER FIVE Distribution of Losses Under Possible Modifications to TRIA	43	(16)
Reduce Uninsured Losses	43	(4)
Mandate CBRN Coverage Availability	44	(3)
Make Terrorism Coverage Mandatory	47	(1)
Reduce Burden on Target Insurers: Decrease Insurer Deductibles	47	(3)
Reduce Burden on Commercial Policyholders	50	(3)
Increase Insurer Deductibles	51	(1)
Decrease Insurance Marketplace Retention	51	(2)
Reduce Burden on Taxpayers	53	(3)
Increase Deductibles and/or Insurance Marketplace Retention	53	(3)
Decrease Coverage Ceiling	56	(1)
Summary of Alternatives	56	(3)
CHAPTER SIX Conclusions and Implications for TRIA	59	(8)
Taxpayer Role Under TRIA	60	(2)
Uninsured Losses Under TRIA	62	(1)
Target Insurer Subsidy	63	(2)
The Renewal of TRIA	65	(2)
APPENDIX
A. Estimating Losses and Insurance Compensation for Large Terrorist Attacks	67	(34)
B. The RAND Anthrax Casualty Model and Casualty Distributions in the Indoor and Outdoor Anthrax Attacks	101	(8)
C. Derivation of Equations (4.3) and (4.6)	109	(4)
Bibliography	113