The Federal Role in Terrorism Insurance Evaluating Alternatives in an Uncertain World

by Dixon, Lloyd; Lempert, Robert; LaTourette, Tom; Reville, Robert T.

• ISBN13: 9780833042354
• ISBN10: 0833042351
• Edition: 1st
• Format: Paperback
• Copyright: 2007-11-10
• Publisher: RAND CORPORATION

Summary

What are the Terrorism Risk Insurance Act1s effects on the market for terrorism insurance? What would be the effect of enhancing provisions for nuclear, biological, chemical, and radiological (NBCR) attacks? The authors conclude that the program yields positive outcomes in a number of dimensions for conventional attacks and identify specific reforms that can improve results for NBCR attacks.

Table of Contents

Center for Terrorism Risk Management Policy Terrorism Insurance Project Advisory Board
Introduction	p. 1
Federal Role in the Provision of Terrorism Insurance	p. 1
Contributions of This Monograph	p. 2
Organization of This Monograph	p. 3
Analytic Methods	p. 5
Approach to Uncertainty Analysis	p. 6
Interventions, Uncertainties, Outcomes, and Relationships	p. 8
Government Interventions	p. 8
No Government Program	p. 9
The Terrorism Risk Insurance Act	p. 9
TRIA with NBCR-Attack Coverage	p. 11
Outcome Measures	p. 12
Key Uncertainties	p. 15
Relationships in the Model	p. 16
The Terrorist-Attack Model	p. 17
The Take-Up Rate Model	p. 20
The Postattack Government Compensation Model	p. 23
The Insurance-Compensation and Loss-Distribution Model	p. 24
Experimental Design	p. 26
Consequences of Allowing TRIA to Expire	p. 29
Take-Up Rates with and Without TRIA	p. 30
Distribution of Losses with and Without TRIA	p. 30
Conventional Attacks	p. 30
NBCR Attacks	p. 35
Trade-Offs Between Taxpayers and Insurers	p. 37
Conventional Attacks	p. 37
NBCR Attacks	p. 39
A Probabilistic Look at the Trade-Offs in Outcomes for Large and Smaller Attacks	p. 41
Cost to Future Policyholders	p. 43
Summary	p. 46
Consequences of Requiring Insurers to Offer Terrorism Coverage for Conventional and NBCR Attacks	p. 49
Take-Up Rate for a Policy That Covers Conventional and NBCR Attacks	p. 50
Distribution of Losses for TRIA with NBCR-Attack Coverage	p. 52
Conventional Attacks	p. 52
NBCR Attacks	p. 52
Cost to Future Policyholders	p. 53
Trade-Offs Between Taxpayers and the Insurance Industry	p. 59
Conventional Attacks	p. 59
NBCR Attacks	p. 60
Expected Taxpayer Cost	p. 63
Extending TRIA to Cover NBCR-Attack Losses When the Cap Is Already Hard	p. 65
Summary	p. 66
Conclusion	p. 69
Key Findings	p. 69
Implications of Findings for Recent Legislation	p. 71
Moving Forward	p. 72
RMS's Probabilistic Terrorism Model	p. 73
Policyholder Take-Up of Terrorism Insurance	p. 81
Loss-Distribution Model	p. 99
Identifying Key Factors Driving Trade-Offs Between Interventions	p. 107
Calculating Expected Losses with Multiple Probability Distributions	p. 111
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