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- Report n°3: Financial protection of critical infrastructure
Report n°3: Financial protection of critical infrastructure
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Table of contents
- Uncertainty and insurability of catastrophic risk : Why is terrorism different?
- States as carriers of the terrorist risk
- Uncertainty and insurability of catastrophic risk : Why is terrorism different?
States as carriers of the terrorist risk
This last point refers to an essential characteristic of the terrorist risk: governments by their actions are major actors in risk management. Locally, the State can use the information in its possession to reduce the level of vulnerability of sites known to be potential or recognized targets, and also to reduce terrorist activity on its territory (reduction of potential losses); for example, they can reinforce police presence in certain buildings or security measures in airports.
Internationally, foreign policy may strongly stimulate or strongly dampen down terrorist groups' appetite for striking at national interests(27) The State's behavior therefore does, at least to some extent, affect the degree of likely terrorist action and the level of attendant losses. This fundamental factor enters into the selection of a specific risk-sharing procedure. In the circumstances, the question is not whether the government should intervene in the insurance market because of market shortcomings, but much more what type of governmental participation should be designed and implemented, taking into account the public sector responsibilities that have just been described.
In other words, financial protection of terrorist victims must be conceived as a fundamental component of the national security policy of a country, and be a complement to anti-terrorist measures, to reinforcement of security and to preparation of the public (simulations, exercises). On this score, the private and public sectors must work in harmony to set up sustainable coverage programs, designed specifically to fit the particular catastrophic risk of terrorism. The aim of the next section is precisely to show how different countries have dealt with the problem. Although national systems differ in some ways, they are all based on the creation of partnerships between the public and private sectors, and by doing so, recognizing the limits of insurability of the terrorist threat by the market alone.
(27) See Lapan and Sandler (1988) and Lee (1988).