Terrorism and Insurance Markets: A role for the government as insurer?

Since September 11, 2001, insurance markets have been struggling to adjust to new information about the magnitude of risks posed by terrorism, and to the loss of tens of billions of dollars in reserves because of claims relating to the September 11 attacks. Insurance coverage for terror-related losses has become more expensive and in some contexts quite difficult to obtain. As a result, various interest groups have called for the government to become involved in the provision of coverage for terrorism losses, and proposals for increased government involvement are moving forward in Washington. We question the wisdom of any additional government involvement -- it is likely to come largely too late to be of much help in the short run, and in the long run may supplant and distort normal market forces.