Supply and Demand for Terrorism Insurance: Lessons from Germany

Christian Thomann and J.-Matthias Schulenburg

Hannover Economic Papers (HEP) from Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät

Abstract: In our article we consider insurance as a means of allocating terrorism risk. Terrorism poses a significant challenge for insurers worldwide. In terms of possible losses it fits into the same category as earthquakes and hurricanes. Yet as a result of the uncertainty surrounding these risks private markets face significant difficulties in providing insurance for it. In the insurance industry costly risk bearing can explain the supply of capacity risks. Corporate risk management theory provides reasons why transaction costs can motivate firms to purchase insurance. In the context of these tightly connected theories we derive models for both the supply of terrorism reinsurance and the demand for terrorism insurance. Using two datasets from the German terrorism insurer we estimate models on how corporations in Germany employ government sponsored insurance to manage their terrorism risk and on the factors that determine the supply for private market terrorism reinsurance.

Keywords: Terrorism Insurance; Risk Allocation; Regulation (search for similar items in EconPapers)
JEL-codes: D61 G22 G32 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2006-06
New Economics Papers: this item is included in nep-fin, nep-fmk, nep-ias and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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