• Military
• WMD
• Intelligence

• Security Menu                     

• Systems
• Industry
• Operations
• Hot Documents
• News
• Reports
• Policy
• Budget
• Congress
• Links

• Space

Terrorism Insurance 'Underpriced' in United States

Council on Foreign Relations

Interviewee: Erwann Michel-Kerjan, Managing Director, Risk Management and Decision Processes Center, Wharton School of Business
Interviewer: Lee Hudson Teslik, Associate Editor, CFR.org

September 8, 2008

In the seven years since 9/11, no major terrorist attack has taken place on U.S. soil. As a result, debate over the financial implications of terrorism has gradually faded. In the meantime, the insurance and reinsurance sectors, which took a heavy hit after the World Trade Center attacks, have worked to gird themselves for the next "day after" scenario. Erwann Michel-Kerjan, an expert on terrorism insurance and the director of the Risk Management and Decision Processes Center at the Wharton School of Business, says there is still much work to be done from a policy standpoint. He notes that roughly 40 percent of major U.S. businesses remain entirely uninsured for the possibility of a terrorist attack, despite the devastating threat an attack could pose for their operations. He also argues that government insurance subsidies, combined with the lack of an attack for seven years, have led to a situation in which terror insurance in the United States may now be underpriced.

Could you give us a brief overview of how the business of insuring against terrorism has proceeded since 9/11? There was a fair amount of concern about this right after 9/11, but the urgency of the issue seems to have faded a bit, at least in terms of press coverage. Where do things stand now?

In a sense one has to go back before 9/11 to understand better what happened. On September 10, 2001, insurance companies in most OECD [Organization for Economic Cooperation and Development] countries like the United States, in Europe, and in Asia, were covering terrorism as part of their commercial products, but they were doing it for free. In other words, they didn't exclude terrorism from their policies, but at the same time they were not pricing specifically for that risk.

Read the rest of this article on the cfr.org website.

Copyright 2008 by the Council on Foreign Relations. This material is republished on GlobalSecurity.org with specific permission from the cfr.org. Reprint and republication queries for this article should be directed to cfr.org.