The Future of Managing Terrorism Risk: Industry Challenges & Opportunities

This paper is an examination of the threat of global terrorism and the associated challenges and opportunities in determining the most viable risk management solutions. Terrorism risk poses unprecedented challenges - conceptual, technical, and operational - for the insurance industry. The effects of terrorist events can be enduring, incurring virtually limitless costs and consequences to the economy. Through analysis of the nature of terrorism risk, issues with insurability become apparent. Despite offering coverage for such events, insurers face difficulties in measuring and quantifying terrorism risk to underwrite it profitably. With the current political environment, the uncertainty of the government’s role is a concern for insurers, risk managers, and lawmakers. The future of managing terrorism risk is reliant on the industry adopting a solution that is not only feasible in implementation, but also economically sustainable.