1. ^aCenter for Risk Management and Decision Processes and OPIM Department – The Wharton School, University of Pennsylvania, Jon M. Huntsman Hall, Ste 500, 3730 Walnut Street, Philadelphia, PA 19104, U.S.A. E-mail: erwannmk@Wharton.upenn.edu
2. ^bEcole Polytechnique, Laboratoire d'Econométrie, Paris, France
3. ^cMunich School of Management, Institute for Production Management and Management Accounting, Ludwigstr. 28, 80539 Munich, Germany. E-mail: pedell@bwl.uni-muenchen.de

^* We thank Deborah Klauder, Howard Kunreuther, Fabrice Lebourgeois, Catherine Mikton, Andreas Richter and an anonymous referee for discussions and helpful comments on earlier versions of this paper. We appreciate insights from Bruno Gas (CEO of Extremus), Dirk Harbrücker (Extremus), Kerstin Paehler (Extremus), Jacques de Paris (Chairman of GAREAT) and François Vilnet (Vice-chairman of GAREAT). We also benefited from fruitful discussions on related issues with participants of the Wharton Risk Center's "Managing and Financing Extreme Events" Meeting, the Lawrence Livermore National Laboratory "Living with Risk" workshops at UC Berkeley and in Boston, the NBER Insurance Group workshop in Cambridge, MA, the Institute for Sustainable Development and International Relations (IDDRI) "Insurance and Mutualization" workshop in Paris and at the GMU-Harvard "Private Efficiency, Public Vulnerability" workshop in Cambridge, MA, Harvard University's Kennedy School of Government, as well as with members of the OECD Task Force on Terrorism Insurance on which Michel-Kerjan serves.

Michel-Kerjan wishes to thank Lockheed Martin, Wharton-Columbia Radiant Trust, the Institut Veolia, the EDF-Polytechnique Chair on Sustainable Development and the Wharton Risk Management and Decision Processes Center for scientific and financial support of this project. Pedell gratefully acknowledges financial support of the Deutsche Forschungsgemeinschaft and the Fulbright Commission.

Abstract

The paper discusses the development and operation of terrorism insurance programmes established in France, Germany and the U.S as reaction to 9/11. These three programmes are all based upon a public–private partnership with government backup. However, there are some fundamental differences regarding issues such as exclusions, price differentiation, risk mutualization, current level of terrorism insurance demand and the government exit strategy. In particular, significant differences of prices and degree of market penetration in the three countries have been observed and we discuss some factors that could contribute to this. Recent changes in the nature of international terrorism worldwide indicate that these issues will remain in our future. Hence, we think that government and industry would at the very least benefit from better understanding of how others operate abroad.