TCS Daily

Saudi Terror Insurance

By James D. Miller - October 24, 2003 12:00 AM

Poor misunderstood Saudis: How can they convince America of their sincere desire to fight terrorism? By selling terrorism insurance!


We Americans are too uncivilized to take the honorable Saudis at their word when they pledge to fight terrorism. What Americans do believe, however, is money. To speak our language the Saudis should sell terrorism insurance to American businesses.


For example, the owner of a skyscraper might pay the Saudi government a few dollars a year in return for a legally binding pledge that the Saudis will compensate the owner for any loss caused by a terrorist attack. Since the Saudis have so many financial assets in Western nations, it would be nearly impossible for them to renege on paying off claims.


The Saudis might worry, however, that although they can stop their own people from engaging in terrorism, they can't, for example, prevent the Finnish from going on religious jihads against the U.S. Therefore, the Saudis should perhaps sell insurance covering only attacks perpetrated by Saudi citizens.


Imagine the increased security Americans would feel if the Saudis stood to lose $200 billion or so if another 9/11 occurred. Surely the knowledge that the Saudis would suffer such a loss would convince all Americans that Saudi Arabia was truly committed to preventing another 9/11. Selling terrorism insurance would allow the Saudis to actually benefit from any American paranoia over future terrorist attacks by Saudi citizens. U.S. businesses overestimating the likelihood of any such attack would raise the price of terrorism insurance, profiting Saudi insurance providers.


This week reports emerged that Saudi Arabia might be trying to buy Pakistani nuclear weapons. Given some Americans' belief that the Saudi leadership is cozy with American-hating jihadists, the U.S. might forcibly stop the Saudis from going nuclear not because we fear that the Saudis will directly attack us, but rather because we fear that a Saudi atomic weapon might somehow fall into the hands of an Al Qaeda like group. If the Saudis, however, sold the U.S. substantial insurance against any nuclear terrorist attack, then America would believe that the Saudis would take great care to insure that none of their atomic weapons ever got "misplaced," so therefore we would be less likely to thwart their atomic ambitions.


Americans have greater faith in words backed up by money. Indeed, this was the logic used to justify the Pentagon's now aborted terror markets. These terror markets would have allowed people to bet on whether they believed certain terrorist acts would occur in the near future. For example, it might have been possible to buy contracts that paid $1 each if a Saudi citizen hijacked an American plane in the next year. If this contract sold for ten cents then the market would be roughly estimating that there was a 10% chance of such a hijack occurring. Since markets excel at gathering and synthesizing information, terror market prices would have provided excellent signals about the likelihood of different terrorist acts occurring. Sadly, politicians bothered by the ghoulishness of facilitating bets on terrorism killed the markets, thereby making it easier for terrorists to kill us.


Nations could increase incentives for international cooperation against terrorism by providing terrorism insurance to one another. Syria, for example, might take a different approach to dealing with Palestinian terrorist groups if Syria were obligated to give Israel $1 million for every Israeli killed by a suicide bomber.


James D. Miller writes The Game Theorist column for TCS and is the author of Game Theory at Work.

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