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Corporate Management of Highly Dynamic Risks: The Case of Terrorism Insurance in Germany

By Christian Thomann, Razvan Pascalau, J.-Matthias Graf von der Schulenburg and Bruno Gas

Abstract

This article extends the theory of corporate risk management to encompass highly dynamic risks. Taking Viscusi'�s (1989) prospective reference from the context of individual decision making and applying it to a corporate context we propose a theory of how corporations process new information. Using unique data on all terrorism insurance policies sold in Germany we find support for this concept of risk-updating by showing that the demand for terrorism insurance is strongly determined by the recent occurrence of terrorist attacks.Corporate Insurance, Risk Management, Terrorism Insurance, Expected Utility, Prospect Theory

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