Counterterrorism

TERRORISM RISK INSURANCE:

Comparison of Selected Programs in the United States and Foreign Countries

The structures of the 16 terrorism insurance programs GAO reviewed generally fell into three broad categories. Programs in the first category have a multilayered structure, with insurers, reinsurers (which offer insurance for insurers), and governments providing coverage. Several programs, including those in Australia and the United Kingdom (UK), use this approach. In the second category, which includes Spain and Israel, government entities provide all the coverage for terrorism risk, and insurers and reinsurers do not take on any risk. The third category includes programs, such as those in Austria and India, in which insurers and reinsurers are entirely responsible for providing coverage and the government has no financial role. In comparison, the U.S. program involves coverage from the government and insurers, but it differs from many programs as its program does not include the purchase of reinsurance.

Among the six programs GAO reviewed in-depth, the loss-sharing arrangements among program participants vary, but program reserves and the private sector likely would be able to cover losses from most conventional terrorist events before public funds are needed, according to program officials. However, in the event of a very large terrorist attack, governments that have a role would potentially be responsible for a substantial proportion of losses. As shown in the figure, programs in which the government provides a layer of financial support have greater total amounts of coverage compared to those with only private sector participation.