Federal Reinsurance for Disasters
Abstract
The terrorist attacks of September 11, 2001, inflicted enormous personal and property losses on the United States. Insurance payments for economic losses on that day will surpass $30 billion and could top $50 billion. Among the many adverse economic effects that resulted from the attacks is a continuing shortage of insurance against losses of property from terrorism. Coverage is difficult to obtain, especially for buildings or sites that are landmarks; where coverage is available, prices are high and restrictions are numerous. Policymakers have developed two types of federal proposals to increase the supply of property and casualty insurance. Under one set of options, which was created following Hurricane Andrew in August 1992 and the Northridge earthquake in January 1994, the federal government would auction reinsurance contracts to primary insurance companies and state-sponsored insurers. Reinsurance is an established practice among private insurers. By buying reinsurance, primary insurers spread the risk of loss more widely and strengthen their ability to insure against catastrophes. The intent of those proposals is to offer federal reinsurance when coverage is in short supply, at market prices that are expected to cover the government's costs. By contrast, under proposals developed since September 11, the government would pay for most losses from a terrorist attack directly, without reimbursement or with only partial reimbursement. Even though one type of proposal was created in response to natural disasters and the other from an act of terrorism, both types could be considered viable alternatives, whatever the source of catastrophic loss.
Document Details
- Document Type
- Technical Report
- Publication Date
- Sep 01, 2002
- Accession Number
- ADA408297
Entities
Organizations
- Congressional Budget Office