Principles
Principles to Guide the Future of Terrorism Risk Insurance
Good public policy is based upon solid, analytical principles. Scholars at Wharton, RAND, and USC have developed the following principles to guide policy discussions on terrorism insurance. These principles should also be helpful to journalists in their coverage of terrorism risk insurance.
Public policy that incorporates and balances these principles will provide for a successful national response to the challenges of insuring against terrorism.
1. Risk analysis - The likelihood of a terrorist attack should be a consideration when determining insurance pricing and coverage. Risk analysis can be useful in informing insurance pricing and purchasing decisions.
2. National Security - Terrorism is a national security issue and the public sector has responsibility for making terrorism insurance widely available and encouraging its purchase.
3. Dynamic Threat - Terrorism is a dynamic threat. The terrorists react to our actions and seek innovative ways to undermine our defenses. Public policy regarding terrorism insurance should evolve along with the threat.
4. Uninsured Losses - A public policy that anticipates high rates of uninsured losses should not be tolerated unless one acknowledges that the public sector will respond with financial assistance after the attack.
5. Loss Distribution - The design of a terrorism insurance program needs to consider the distribution of losses after an attack between victims, insurers, all commercial policyholders and taxpayers.
6. Mitigation Measures - Terrorism insurance public policy should encourage those at risk to adopt mitigation measures. However, terrorism involves complex issues of interdependent risks that require public sector management to avoid unintended consequences.
2. National Security - Terrorism is a national security issue and the public sector has responsibility for making terrorism insurance widely available and encouraging its purchase.
3. Dynamic Threat - Terrorism is a dynamic threat. The terrorists react to our actions and seek innovative ways to undermine our defenses. Public policy regarding terrorism insurance should evolve along with the threat.
4. Uninsured Losses - A public policy that anticipates high rates of uninsured losses should not be tolerated unless one acknowledges that the public sector will respond with financial assistance after the attack.
5. Loss Distribution - The design of a terrorism insurance program needs to consider the distribution of losses after an attack between victims, insurers, all commercial policyholders and taxpayers.
6. Mitigation Measures - Terrorism insurance public policy should encourage those at risk to adopt mitigation measures. However, terrorism involves complex issues of interdependent risks that require public sector management to avoid unintended consequences.
Presented at the National Symposium on Terrorism Risk Insurance
October 7, 2005 – Cannon House Office Building
House of Representatives – Washington, D.C.
Sponsored by
Wharton Risk Management and Decision Processes Center
University of Pennsylvania
RAND Center for Terrorism Risk Management Policy
Center for Risk and Economic Analysis of Terrorism Events
University of Southern California
Congressional Quarterly – The Communications Institute