Michigan Law Review, Nov 2003 v102 i2 p268(60) 
Insuring against terrorism - and crime. Saul Levmore; Kyle D. Logue. 

I. INTRODUCTION 

... One aim of this Article is the exploration of the relationships between 
promised or expected government actions (or inactions) and private decisions 
regarding terrorism risk. These issues lead to some novel ideas about the 
role of government in insuring against terrorism--and then against crime 
more generally. In Part II we begin with some background on the response of 
the private-insurance market and the federal government to the losses 
resulting from September 11th. Part III looks at the positive question of 
how government and private actors should be expected to respond to the 
losses of 9/11 and to the prospect of such losses in the future. It explores 
the interactions between government relief and charitable responses to 9/11, 
as well as the existence or absence of private insurance, and it draws 
contrasts between terrorism disasters and natural disasters, as well as 
between 9/11 and prior terrorist attacks. Part III also analyzes the 
circumstances in which episodic relief of the 9/11 variety will lead to (or 
be replaced by) more permanent, routinized relief, as is available in some 
other countries. 

Part IV takes up the normative question of the optimal mix of government and 
private relief (including insurance) for terrorism-related losses. It 
provides a skeptical view of government intervention in property-insurance 
markets generally and of the particular federal terrorism-reinsurance regime 
that Congress recently adopted. Part V then broadens the inquiry by arguing 
that, whatever one thinks of the case for government-sponsored terrorism 
compensation or insurance, the case for government-sponsored insurance 
against crime--which is to say a much broader set of crimes than terrorism 
alone--is at least as sound. Part VI concludes. ...

IV. THE OPTIMAL MIX OF GOVERNMENT RELIEF AND PRIVATE INSURANCE 

...

The case for government intervention is fueled by another difference between 
terrorism and natural disasters, namely the location of expertise and 
information about these risks. In the case of potential terrorist attacks, 
the government has powerful intelligence-gathering capabilities that no 
private insurer can muster--and this is the sort of information that the 
government will not readily share with insurance companies. Although it is 
easy to imagine an information-sharing partnership between the public and 
private sectors with respect to natural disasters (so that meteorological 
and seismological data might, for example, be exchanged), such an 
arrangement is difficult to imagine with respect to terrorism. (99) This 
difference between natural and human-made disasters might at first appear to 
suggest a reason for government intervention in the manner of the British 
system, in which the government is a reinsurer rather than a primary 
insurer. (100) But the reasoning is weakened by the realization that if the 
government conceals information in the interest of national security, then 
it is unclear how the government will be able to use that very same 
information in designing and pricing its own brand of terrorism insurance. 
(101) Observers who value the behavioral effects that market pricing can 
produce will thus be slow to approve of government involvement in this arena. 

...

(99.) Although it is difficult to imagine the government sharing its 
intelligence regarding terrorist targets with private insurers, the 
reverse--using private-insurance markets to produce useful information for 
the government--is certainly conceivable. Indeed, the short-lived plan to 
create a market in "terrorism futures" would have produced a version of 
this. The idea there was to generate new sources of reliable information 
regarding when and where the next attack would occur by letting 
people--including (if was hoped) some people with exceptionally good private 
information on the issue--essentially bet on the question, and thereby 
profit from their information. When the program was made public, however, 
there was an outcry among commentators and politicians, leading to a 
decision by the Defense Department to end it. One of the main concerns was 
that terrorists themselves might, either directly or indirectly, be able to 
profit from the program. See Reuven Brenner, A Sale Bet, WALL ST. J., Aug. 
1, 2003, at A8. 

...

Saul Levmore 

Dean & William B. Graham Professor of Law, University of Chicago Law 
School.--Ed. 

Kyle D. Logue 

Professor of Law, University of Michigan Law School. ...