As threats against New York City's subway system emerged late last week, Howard Kunreuther was at work in Washington.
The Risk Management and Decision Processes Center co-director had traveled to the capital to participate in the national symposium on terrorism risk insurance, where representatives from universities, research centers and the insurance industry met to discuss the future of the Terrorism Risk Insurance Act.
Signed by President Bush in November 2002, the TRIA acts as a safety net for insurance companies that were unable to offer terrorism coverage after private reinsurance companies -- those that provide insurance to insurance companies -- fled the market in the wake of Sept. 11.
But some congressmen argue that an extension will prevent insurance companies from adapting to provide better coverage. If not renewed, the TRIA will expire at the end of December.
At the symposium, Kunreuther presented the Wharton School's report on the TRIA, which concludes that a public-private partnership is essential in handling the harrowing difficulties of insuring against terrorism.
Unlike with natural disasters, it is very difficult to calculate the probability of terrorist attacks due to a lack of patterned historical data.
In the case of a severe terrorist attack, there is little a business or property owner can do that would lessen the loss. Even if there were, property owners would lack the incentive to do so because they could suffer loss due to an attack on an adjacent property, the report said.
Although reinsurance companies stopped offering terrorism coverage after the Sept. 11 attacks, many lenders in metropolitan areas required terrorism insurance for construction loans. This lead policymakers to fill the gap in the reinsurance market with TRIA.
While upcoming congressional debate on the TRIA may pit market purists -- who believe in minimizing government intervention -- against interventionists, Kunreuther said that both the research for Wharton's TRIA report and the symposium were focused on policy, not politics.
"We were intentionally trying to stay away from political issues," he said. "We were very, very clear [that] we wanted to hear all viewpoints, and we did not want to make [the symposium] political at all."
So that reinsurers would be able to re-enter the market, Kunreuther proposed that the qualification for TRIA aid be raised from $5 million to $500 million. This would encourage reinsurers to re-enter the market but protect them against losses that had previously pushed them out of the business, Kunreuther said.
With this modification, the TRIA should be extended for two years, he added, while a national commission studies the effects of a long-term public-private partnership.
Health Care Systems professor Scott Harrington, who describes Kunreuther as having a "tremendous amount of energy and enthusiasm that he brings to every project," worked with him in developing Wharton's TRIA report.
Harrington said that the TRIA report reflects the input of a diverse group of professors and researchers, as well as of insurance and risk-modeling companies. This helped the researchers to achieve a balanced perspective.
"I think in general ... [nonpartisanship is what] we're really good at," he said, adding that some extreme advocates of free-market theories may find fault with the proposal. We "call the shots as we see them."
Risk Management and Decision Processes Center research fellow Erwann Michel-Kerjan said that a belief in minimal government intervention and support for a government insurance safety net do not have to be mutually exclusive.
Michel-Kerjan said that it does not make sense to spend a lot of money on homeland security but not figure out "who pays what in advance." If more firms purchased terrorism insurance, even if reinsured by the government, it could save government relief spending in the event of a disaster, he added.
