Question

In: Operations Management

The Sept. 11 terrorist attacks accounted for the largest insured loss in the history of the...

The Sept. 11 terrorist attacks accounted for the largest insured loss in the history of the world. The insurance companies providing commercial crime, commercial property, commercial general liability, and business income coverage were required to pay in most cases because the event was not legally considered an "act of war" or "catastrophe", which would have excluded it from coverage (see page 330). Very soon after that, every insurance policy added "act of terrorism" to excluded losses, leaving every business on its own to deal with the risk of a massive loss caused by an act of terrorism. Congress addressed that problem with the Terrorism Risk Insurance Act of 2002. The act expired in 2014 and was renewed a week later for an additional six years.

In a nutshell, TRIA allows insurers to exclude losses due to acts of terrorism from standard commercial package policies, but it also requires the insurers to offer terrorism coverage in a separate policy and provides some federal assistance paying for losses caused by terrorism. But a business has the option whether to buy the terrorism coverage and it's very expensive.

Imagine all of you together (due to your advanced understanding of risk management) make up the committee at MGM Resorts that will decide whether the company should buy any terrorism insurance and if so how much. Each of you researches TRIA a little further on your own first and then begin by stating whether you should or shouldn't buy it and why/why not.  

Solutions

Expert Solution

Casino in general are at high risk of terrorism. Casino like MGM daily entertain a large number of customers who are constantly at risk of being hurt by any terrorism act. If any usch attact occurs, and the casino endure the liability it would have to pay a huge sum as a cost of recovery.

MGM has already been targetted earlier and is constantly at risk of further terrorist acts. Thus, it has great need of protection of insurance from Federal against terrorsim acts.

Earlier before TRIA insurance companies were reluctant to offer insuranec against terrorism. This problem was solved by the enactment of this law. Without TRIA, even if MGM agreed to have insuranec against terrorism activities from an insurance company, it would have to face great cost difficulties in obtaining covergae.

Thus, MGM should buy it.

keosha answered 2 years ago
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