Distribution of Losses from Large Terrorist Attacks Under by Stephen Carroll

By Stephen Carroll

The pending expiration of the Terrorism danger coverage Act (TRIA) of 2002 is the impetus for this review of the way TRIA redistributes terrorism losses, assisting to notify policymakers on even if to increase, adjust, or terminate it.

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

Sample text

We use data on the identities and losses of the insurers involved in the World Trade Center attack to develop a series of assumptions about the aggregate deductible that would apply in a terrorist attack on a building and its immediate neighbors. We use these assumptions to estimate what the aggregate effective deductible would be in a terrorist attack on a building and then use those estimates to explore the effects of TRIA in response to aircraft impact and indoor anthrax attack scenarios. Because we have no reason to believe the available data provide a basis for estimating the deductibles that would apply in an outdoor anthrax attack, we employ an entirely different series of assumptions to explore the effects of TRIA in response to an outdoor anthrax attack scenario.

1 Some parts of the simulations also utilized models developed by RAND and by federal government agencies (see Appendix A). ____________ 1 RMS is a leading provider of models and services for catastrophe risk management. Through the CTRMP, RAND has full access to the RMS terrorism model for use in policy analysis. RAND and RMS worked together closely to ensure that model data, assumptions, and limitations are accurately accounted for in the analysis. 15 16 Distribution of Losses from Large Terrorist Attacks Under TRIA The attack modes selected represent feasible attacks and indeed were chosen because they involve methods (aircraft impact) or materials (anthrax) that have been used in previous terrorist attacks.

Under TRIA, insurers must offer coverage for property losses from conventional terrorist attacks, although policyholders may decline to purchase that coverage. Insurers may choose to offer property coverage for terrorist CBRN attacks, and policyholders are free to decline the offer if they so choose. In addition, TRIA does not alter the requirement that workers’ compensation policies must include coverage for losses from all perils, including terrorist attacks. The fraction of commercial policyholders who purchase terrorism coverage when it is offered, generally termed the take-up, determines what fraction of the total losses resulting from a terrorist attack will be incurred by policyholders who declined to purchase terrorism coverage (“uninsured”).

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