Publisher's Synopsis
From an insurance standpoint, measuring and predicting terrorism risk is challenging. According to standard insurance theory, four major principles contribute to the ability of insurers to estimate and cover future losses: the law of large numbers, measurability, fortuity, and the size of the potential losses. When determining whether to offer coverage for a particular risk and at what price, insurers evaluate whether sufficient information exists about each of these principles. To underwrite insurance-that is, decide whether to offer coverage and what price to charge-insurers consider both the likelihood of an event (frequency) and the amount of damage it would cause (severity).
