The basic concept of insurance is simple; pay a premium in exchange for the comfort of knowing that should a disaster occur, an insurance company will foot the bill. Therefore, it is only natural that insurance agencies evolve to offer higher levels of insurance against terrorist attacks in a world that has become increasingly aware of terrorism’s devastating effects.

Government

Many people in the private sector of insurance feel that since it is the government’s duty to provide security to the American public against terror attacks, the government should also help in the rebuilding process should an attack occur. Private insurance agencies are very skeptical about providing terrorism insurance because of the lessons learned from the damages incurred from such attacks as the September 11th attacks on America and the bombings in London in early 2005. The September 11th attacks alone caused the loss of $32.5 billion in insured damages. This was exponentially more costly than any other disaster that had ever been faced by the United States with the previous most costly disaster being Hurricane Andrew that struck in 1992 and caused an estimated $21 billion in damages.

Businesses

Large companies, especially airlines, have seen insurance prices skyrocket due to the costs associated with insuring against terrorist attacks. Prior to 9/11, businesses were paying premiums that were substantially lower. For example, Chicago’s O’Hare airport was paying a monthly premium of around $125,000 before the events of 9/11 in order to receive $750 million worth of coverage. After 9/11, the premium rose to an estimated $6.9 million for a coverage of only $150 million. This is how terrorism affects the economical structure of the insurance industry. As the threat of attack rises, so do premiums, while the amount of coverage that is provided falls. This translates into business paying more and getting less.

Government Help

In response to the 9/11 attacks, the American government passed the Terrorism Risk Insurance Act in 2002 which was designed to allow the United States government to foot most of the bill should another catastrophic attack occur. The Terrorism Risk Insurance Act runs through 2005 and has many debating whether its renewal is needed or whether private insurance agencies should be left alone to insure America against terrorist attack. This illustrates the dilemma that is faced by all nations regarding what is the proper course of action in response to providing insurance against terrorist activities. The world seems to be divided between those that believe governments are responsible and those that want the private sector to take responsibility.