NCPA - National Center for Policy Analysis

Terrorism Insurance Has Few Takers

September 10, 2003

The risk of terrorism has fallen, as measured by insurance markets, and greater attention is being paid to the cost of homeland security measures compared to their ability to reduce risk.

The market for insurance coverage of actual terrorist events tells us that progress has been made: Except for a blip just before hostilities in Iraq, demand for the new government-backed insurance policies has been slight.

  • An influential survey of insurance brokers in July found that three-quarters of customers were turning down terrorism coverage, even at subsidized rates, saying they just don't feel the need.
  • In London, home of an experienced insurance "pool" on terrorism, the cost of insuring the most prestigious buildings against attack has fallen by half this summer.
  • In February, however, the White House Office of Management and Budget used the Federal Register to quietly solicit opinions about whether several dozen "homeland security" regulations are worth their cost.
  • H. Keith Florig, a risk analyst at Carnegie Mellon University, found that spending $700 million a year to irradiate mail to kill anthrax spores, compared to other government investments in life-saving precautions, would have to achieve the unlikely result of saving 100 lives a year.

Holman W. Jenkins Jr. suggests that it isn't the billions spent on homeland security measures that have reduced the perceived threat of terrorism. Instead, he says, it is the operations in Afghanistan and Iraq that have actually put terrorists on the run and eliminated the threat of Saddam Hussein's regime.

Source: Holman W. Jenkins Jr., "Insurance News Flash: The Terrorists Aren't Winning," Wall Street Journal, September 10, 2003.

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