Federal Reinsurance for Disasters

Federal Reinsurance for Disasters
Federal Reinsurance for Disasters
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A CBO Study. Analyzes proposals for federal reinsurance of risks from terrorism and natural disasters.

Policymakers have developed two types of federal proposals to increase the supply of property and casualty insurance. Under one set of options, which was created following Hurricane Andrew in August 1992 and the Northridge earthquake in January 1994, the federal government would auction reinsurance contracts to primary insurance companies and state-sponsored insurers. Reinsurance is an established practice among private insurers. By buying reinsurance, primary insurers spread the risk of loss more widely and strengthen their ability to insure against catastrophes. The intent of those proposals is to offer federal reinsurance when coverage is in short supply, at market prices that are expected to cover the government’s costs. By contrast, under proposals developed since September 11, the government would pay for most losses from a terrorist attack directly, without reimbursement or with only partial reimbursement. Even though one type of proposal was created in response to natural disasters and the other from an act of terrorism, both types could be considered viable alternatives, whatever the source of catastrophic loss.

A key consideration in Congressional deliberations about disaster reinsurance is how the property and casualty industry would respond without federal intervention. That is, would the private supply of insurance rebound quickly? A fast recovery would counter a potential slowdown in construction, an industry in which insurance is often required for financing. Alternatively, is the risk of terrorism uninsurable, such that supply could not recover without the government’s assistance? Furthermore, given that the Congress may need to act without fully understanding the industry’s ability to respond, are there policies that could avoid undermining private activity while providing a backstop to private efforts if they proved inadequate? How much would such policies cost taxpayers and the government? This Congressional Budget Office (CBO) study examines the market for property and casualty insurance; the market’s response to recent large, unanticipated losses; and policies that the Congress is considering to increase the availability of insurance.



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Policymakers, members of governmental agencies, insurance companies, corporations and businesses, and any organization that would be economically impacted by a terrorist attack or natural disaster and needs to consider federal recovery and insurance programs would want a copy of this publication.

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Congress, Congressional Budget Office
  • Torregrosa, David
Key Phrases:
  • CBO Study
  • Insurance
  • Disaster Relief
  • Disaster Insurance
  • Terrorism
  • Natural Disasters
SuDocs Class:
Y 10.2:2002026979
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Subject Bibliography:
229DN 259
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Unit of Issue (Non-US):
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