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36 Ind. L. Rev. 447 (2003)
Terrorism and Insurance Markets: A Role for the Government as Insurer

handle is hein.journals/indilr36 and id is 461 raw text is: TERRORISM AND INSURANCE MARKETS: A ROLE FOR THE GOVERNMENT AS INSURER? ANNE GRON ALAN 0. SYKES* ABSTRACT Since September 11, 2001, insurance markets have been struggling to adjust to new information about the magnitude of risks posed by terrorism, and to the loss of tens of billions of dollars in reserves because of claims relating to the September 11 attacks. Insurance coverage for terror-related losses has become more expensive and for some risks difficult or impossible to obtain. As a result, various interest groups called for the federal government to provide coverage for terrorism losses, resulting in the Terrorism Risk Insurance Act of 2002. We question the wisdom of measures of this sort. They are likely to come too late to address short-term market disruption, and in the long run may well supplant or distort desirable market responses to the new information about terrorism risk. The terrorist attacks on the United States in September 2001 created chaos in the insurance industry. Insurers immediately refused to sell more than minimal coverage to any airline for ground damage, placing airlines in difficulty with both creditors and regulators.! Property and casualty reinsurers, who will bear the brunt of the $40 billion or more in claims resulting from the destruction of the World Trade Center,2 announced that they would no longer sell coverage for acts of terrorism. The insurance industry responded by announcing that acts of terrorism would be excluded from coverage under commercial policies in future renewals, a state of affairs that might place the owners of some commercial properties in breach of loan covenants and may leave commercial lenders hesitant to make new loans The Bush administration quickly obtained temporary authority for the Federal Aviation Administration to provide insurance coverage to airlines for * Assistant Professor of Management and Strategy, Northwestern University, Kellogg School of Business. B.A., 1984, magna cum laude, Williams College; Ph.D., Massachusetts Institute of Technology. ** Frank and Bernice Greenberg Professor of Law, University of Chicago Law School. B.A., 1976, College of William and Mary; J.D., 1982, Yale University Law School; Ph.D., 1987, Yale University. I. See Barbara De Lollis, Airlines Plan to Create Insurance Company; Insurers Had StoppedSelling War Risk Policies After September 11 Coverage, USATODAY, Mar. 7,2002, at 2B. 2. Jackie Spinner, Insurers See Terror Coverage Delays Unless US. Helps, WASH. POST, Jan. 18, 2002, at E3. 3. See Adrian Michaels, Insurance Chief Warns US. Business of Cover Loss: Terror Attacks Widespread Disruption and Breaches of Loan Covenants Predicted Unless Legislation Passed, FiN. TIMES (London), Dec. 6, 2001, The Americas, at 12.

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