The Wall Street Journal’s ($) Holman Jenkins’ Business World column today reviews the market for insuring against terrorist attacks, and what Mr. Jenkins finds is quite revealing:

The insurance industry’s job is to quantify risk, and more and more evidence suggests that, in fact, we’ve pretty thoroughly smothered al Qaeda’s ability to bring laborious, slow-moving plots on the scale of Sept. 11 to fruition. If so, actuaries will only be catching up with the insurance market, where terrorism coverage has been a hard sell, even with a dollop of taxpayer subsidy, because most property owners judge the risk to be negligible. But don’t expect industry lobbyists to highlight this fact. Why give up a federal subsidy?
Both Republicans and Democrats on the influential House Financial Services Committee have already written to the White House urging renewal, though the law, known as the Terrorism Risk Insurance Act, doesn’t expire for 15 months. John Snow at Treasury isn’t likely to stand in the way. In fact, aside from the Consumer Federation of America (motto: “If insurance companies are for it, we’re against it”), nobody has an obvious interest in lobbying on the other side — unless, by some miracle, a dissenter should happen to emerge from the insurance industry itself.
Our nominee for this role: Warren Buffett.

Now, why would Mr. Buffett be an advocate for removing the federal subsidy on terrorism insurance? Read on:

The Berkshire Hathaway chief’s most famous pronouncement concerned the inevitability of nuclear terrorism someday. Yet his firm actually has been one of the few large reinsurers willing to make big bets on target buildings like the Sears Tower. We suspect Mr. Buffett will end up laughing all the way to the bank on a careful judgment that the megaterrorist threat to the insurance industry’s capital base is exaggerated.

Mr. Jenkins then points out that even the largest potential targets of terror attacks are held by companies that can absorb the risk of such an attack:

As former Treasury official and Wharton economist Kent Smetters points out in an excellent paper, many megatargets are owned by publicly traded companies, and it’s not clear that insurance has much value for them: Their shareholders are already well diversified. Even the loss of a World Trade Center, at $40 billion, is hardly sneeze-worthy compared to the $100 billion fluctuations that such shareholders put up with in the equity markets every ho-hum day.
What about a nondiversified property owner with all his eggs in one target? That was the case with the Port Authority, owner of the World Trade Center. But even here “cat” bonds and other innovative instruments create ways to share the risk with willing investors in the global capital markets.

Read the whole piece. Another gem by one of the WSJ’s best thinkers.