TRIA and Beyond (Wharton Risk Management and Decision Processes Center)

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Terrorism risk poses fundamental challenges to our national security that must be
seen in a dynamic perspective as the threat is continuously evolving. One of these
challenges is associated with terrorism insurance coverage. Careful research and policy
development are needed in the current debate on the future of terrorism insurance to assure
economic and social continuity in the case of new terrorist attacks in the U.S. Indeed, as
illustrated by the events of September 11th 2001 in the U.S, March 11th 2004 in Madrid and
the recent attacks in London as well as other alerts, the threat of terrorism is likely to
remain an issue for a long time to come.

The goal of this Wharton Risk Center report on TRIA and Beyond is to provide
policymakers, key industry representatives and other interested parties with an analysis of
the question as to what roles the public and private sectors can and should play with
respect to terrorism risk coverage in the United States in the post-9/11 world.

This study builds on research undertaken by the Wharton Risk Center over the past
4 years coupled with the 20 years of experience the Center has had in undertaking research
on managing and financing low probability-high consequence events. The study also
benefited from ongoing work on terrorism insurance programs developed here and abroad
as part of the Organization for Economic Cooperation and Development (OECD) Task
Force on Terrorism Insurance (30 countries including the U.S.).

During the past year, the Wharton team has had fruitful meetings and discussions
with key players on the issues associated with terrorism insurance and its relationship to
other strategies for reducing and managing this risk. These parties include:
- industry sectors
- insurers and reinsurers (including brokers)
- international organizations
- media
- modeling firms
- public interest groups
- public sector agencies
- research institutions
- trade associations
- universities

On February 25, 2005 the Wharton Risk Center devoted the annual meeting of its
Managing and Financing Extreme Events Project to the topic of “TRIA and Beyond: What
Would Be the Most Effective and Sustainable Way for the Nation to Recover from Mega-
Terrorist Attacks?” Approximately 60 people from 25 organizations (federal government,
industry, academic and research institutions) participated in the meeting. This report has
benefited from the fruitful discussions that took place that day and the very helpful
interchange with participants and the feedback we received in the weeks following the
meeting. In the next two pages we list the organizations participating in the February 25th
workshop, the Wharton Risk Center Corporate Associates and the sponsors of this
research. Their intellectual and financial support has been greatly appreciated. The
conclusions and analyses contained in this report, however, are those of the members of
the Wharton Risk Center team and do not necessarily reflect the views of these public and
private organizations.

Some findings from this study have been informed by surveys of insurers,
reinsurers and real-estate investors undertaken in the spring of 2005. We thank the
American Insurance Association, the Insurance Information Institute, the National
Association of Real Estate Investment Trusts, the Property Casualty Insurers Association
of America and the Reinsurance Association of America for helping us develop the survey
instruments and for distributing them to their members on our behalf. Several other
organizations have provided us with their own data, which we have used to undertake
specific empirical analyses for this report. They include Aon, A.M. Best, Moody’s, RAND,
Risk Management Solutions, Standard & Poor’s, the States of Hawaii and Vermont. We
thank them for their willingness to provide us with this information.

A draft report was circulated to a select group of organizations on June 15, 2005
and comments were received from them prior to the issuance of the U.S. Treasury study on
TRIA that was released on June 30, 2005. This Wharton Risk Center report on TRIA and
Beyond reflects the very helpful comments we received from individuals associated with
these organizations.

The analysis and preparation of this report has been a team effort. The conclusions
of the report by and large reflect a consensus among the team members. Not surprisingly
in view of the complexity of the issues, consensus does not necessarily imply unanimity.
Finally, Hannah Chervitz of the Wharton Risk Center deserves special thanks for
the time and energy she put into the report. She provided research assistance, organized all
the meetings and went through the many preliminary drafts of the report with a fine tooth

Philadelphia, August 2005