Insurance and Safety after September 11, 2001: Coming to Grips with the Costs and Threats of Terrorism

Abstract:     
This chapter, originally written as a consequence of the terrorist attacks of September 11, 2001, provides an elementary introduction to the concepts of risk and insurance. The main difficulty lies in assessing probabilities to judge whether premiums are appropriate and, in particular, for events like terrorism. People can handle many of the common risks they face in life. But when they lack experience (e.g. of terrorism), risk can only be assessed through imagination. Insurance companies demand high prices when risks are poorly understood. In particular, the cost of insurance against possible acts of terrorism soared after September 11. Clearly, the world needs to protect itself from the acts of terrorists. However, it is also important to address the root causes of such antisocial movements. Programs addressed at combating ignorance, prejudice, and social inequalities may be more effective premiums for reducing risks of terrorism than has been recognized to date.

Number of Pages in PDF File: 15

Keywords: Decision making, risk, insurance, terrorism, September 11

JEL Classification: D18, D21, D81, D82

working papers series