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Who should insure against terrorism?

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There are a few things all agree on. The first is that the damage caused by a terrorist attack with a weapon of mass destruction – nuclear, biological, chemical, or radiological (known together as NBCR in insurance jargon) – would be so great it would bankrupt the insurance industry, and thus such risks are uninsurable.

For instance if New York City was hit by, say, a nuclear bomb, insured losses could be as high as $778 billion, according to an analysis by the American Academy of Actuaries in Washington, D.C. – and that's not even considered a worst-case scenario.

The other point of agreement is that terrorism insurance for other types of attacks is needed to ensure economic stability and growth.

The White House and the Consumer Federation's Mr. Hunter believe that in the years since 9/11, the market has proved it is capable of covering most losses due to a conventional terrorism attack.

"The insurance industry is just rolling in money, and the taxpayers aren't. We have huge deficits," says Hunter. "Why should we be subsidizing a rich industry that's making record profits right now?"

He contends that since "the big stuff" like nuclear, biological, and chemical damages aren't covered anyway, there's no reason for taxpayers to continue picking up part of the tab for conventional attacks like airplanes or truck bombs crashing into buildings.

Risk hard to model

Insurance experts acknowledge the industry did make record profits in the past year, in part because insurers hiked premiums in anticipation of another massive hurricane such as Katrina – that never materialized.

They also contend the threat of terrorism is inherently different from that of natural disasters because it presents too many uncertainties to be modeled to effectively anticipate frequency and potential levels of damage. Without TRIA they contend many companies might just exclude coverage for all terrorist incidents.

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