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Tuesday, March 21, 2006

Terrorism Insurance Burgeoning Business in Iraq

Insurance is meant to manage risk, and hedge against potential loss.  We here in the U.S. are quite familiar with the concept: auto insurance, renter’s or homeowner’s insurance, life insurance.  But what about buying a terrorism policy?  According to the NY Times, in Iraq -- presently a very violent place -- the Iraq Insurance Company is offering terrorism insurance.  The state-run company has reportedly sold 200 policies, in what the NY Times describes as a “bloom[ing] business.” 

Terrorism insurance looks like an ordinary life insurance policy, but with a one-page rider adding coverage for:

the following dangers: 1) explosions caused by weapons of war and car bombs; 2) assassinations; 3) terrorist attacks.

The article explains:

That guarantee appears to be the first off-the-shelf terrorism policy in the world, insurance experts say. In most countries, of course, there is no need for it: death by terrorism is rare enough that it is usually covered by ordinary accident insurance. In Iraq it is not, partly because the state used to compensate the families of war victims directly. So the Iraq Insurance Company began stepping into the gap about a year ago.

The N.Y. Times mentions 23-year-old Muhammed Said, who works part-time as bodyguard for his father, a city councilman.  Said bought a terrorism policy after two assassination attempts.  The policy cost him 125,000 dinars (about $90) and the payout, if he dies, is five million dinars (around $3,500).  But, according to some U.S. insurance experts:

the policy [is] a novel one, but . . . they would hardly call it a good deal. "In an American context, it's very overpriced," said Robert Hunter, the director of insurance for the Consumer Federation of America, an association of consumer rights groups. "In America, you could probably get $100,000 worth of life insurance coverage for maybe $125 to $150," especially a healthy 23-year-old, he said. "And that would cover you no matter how you died."

But, according to an executive for the Iraq Insurance Company: “The contract is a good luck charm.”  And, indeed, that psychological benefit alone is likely priceless in a state where the risk of explosions, assassinations and attacks is comparatively very great.

[Meredith R. Miller]

http://lawprofessors.typepad.com/contractsprof_blog/2006/03/terrorism_insur.html

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