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Equating terrorism risk with natural catastrophe risk ignores another key difference between the two: the human element. Natural catastrophes are fortuitous events; terrorist attacks are not. For a terrorist event to occur, a plot must be hatched and then executed by one or more individuals. The motives, targets and actions of these actors are ever-changing and their motives are frequently affected by government actions that modelers and insurers are not privy to. This factor only adds to the difficulty in modeling and pricing terrorism risk.
In short, TRIA brings a degree of stability and certainty to a segment of the insurance market that desperately needs it. Without TRIA, insurance carriers will not offer terrorism coverage at competitive rates, if they offer at all, leaving many businesses uninsured and exposed. The ripple effects from canceled construction and lending agreements will cost jobs and unnecessarily slow economic growth. Any terrorism losses would be born exclusively by the government, and therefore the taxpayers. Reauthorizing TRIA seems like a very small price to pay to avoid these hardships.
John R. Phelps is president of RIMS, the Risk and Insurance Management Society.