Trade-Offs Among Alternative Government Interventions in the Market for Terrorism Insurance

Interim Results

by Lloyd Dixon, Robert J. Lempert, Tom LaTourrette, Robert T. Reville, Paul S. Steinberg

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Abstract

This documented briefing presents interim findings from a RAND Center for Terrorism Risk Management Policy project that aims to inform the debate over extending the Terrorism Risk Insurance Act of 2002 (TRIA), as modified in 2005. The study uses analytic tools for identifying and assessing key trade-offs among strategies under conditions with considerable uncertainty to assess three alternative government interventions in the market for terrorism insurance: TRIA; no government terrorism insurance program; and extending TRIA without other changes in the program to required insurers to offer coverage for chemical, biological, radiological, or nuclear (CBRN) attacks. The results suggest that TRIA performs better on the outcome measures examined for conventional attacks than letting the program expire but does not effectively address the risks CBRN attacks present to either businesses or taxpayers. The research also shows that requiring insurers to offer CBRN coverage without other program changes has little upside for CBRN attacks and can have significant unintended consequences in dealing with conventional attacks.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Consequences of Allowing TRIA to Expire

  • Chapter Three

    Consequences of a Mandatory CBRN Offer Without Other Program Changes

  • Chapter Four

    Conclusions and Next Steps

  • Appendix A

    Summary of the Appendixes

  • Appendix B

    Robust Decisionmaking

  • Appendix C

    Uncertainties, Government Interventions, and Outcome Measures

  • Appendix D

    Take-Up Rate Model

  • Appendix E

    Risk Management Solutions Attack Model

  • Appendix F

    Loss Distribution Model

  • Appendix G

    Robust Decisionmaking Analysis

The research reported here was supported by the RAND Center for Terrorism Risk Management Policy (CTRMP) as part of its larger research program focused on terrorism risk, insurance, and other economically focused issues related to the terrorist threat.

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