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- Title
Terrorism Insurance Coverage: The Market Impact on Insurers and Other Exposed Industries.
- Authors
Marlett, David C.; Griffith, John; Pacini, Carl; Hoyt, Robert E.
- Abstract
In the months following the September 11th terrorist attacks, the federal government attempted to create a federal terrorism insurance program to alleviate insurance market disruptions. The market disruptions resulted from reinsurers restricting coverage for terrorism insurance, forcing insurers to decide if they should retain the exposure or exclude and transfer it back to the policyholder. The unavailability of terrorism insurance increased the risk for organizations that desired to transfer their exposure to insurance markets in order to stabilize operations and protect assets. The progress toward what eventually became the Terrorism Insurance Risk Act of 2002 was marked by a series of proposals, some more favorable than others to the insurance industry. An industry-sponsored proposal called for a federal reinsurance pool to cover terrorism risk, while a congressional initiative, H.R. 3210, proposed a loan-based plan that would require repayment by insurers of any federal terrorism coverage. As the various proposals worked their way through the legislative process, there were measurable reactions in the stock market as investors' perceptions of the outcome of the legislative process changed. This study tracks the progress of the various initiatives that eventually turned into the federal terrorism insurance law and also examines the market impact of the revisions on related industries. Intuitively, of course, insurance companies would be most directly affected by any new federal initiatives. Our study goes beyond that to also look at the effect on some of the major purchasers of insurance coverage, including airlines, banks and utility companies. To measure the reaction of the equity markets to the legislative progress on this law, we use a standard event study, methodology. The event study is a statistical technique that measures abnormal changes in the price of stocks following the introduction of new information. Stock prices change continuously as new...
- Subjects
UNITED States; SEPTEMBER 11 Terrorist Attacks, 2001; TERRORISM insurance; INSURANCE; PERSONAL finance; SOCIAL security; INSURANCE policies; INSURANCE law; COMMERCIAL law; STATE supervision of insurance; MARKET laws; TRADE regulation; DELEGATED legislation
- Publication
Journal of Insurance Regulation, 2003, Vol 22, Issue 2, p41
- ISSN
0736-248X
- Publication type
Article