Does my business need Terrorism Insurance?
What is Commercial Terrorism Coverage and do I need it for my Business?
The Terrorism Risk Insurance Act, originally passed after 9/11, was renewed on January 8, 2015 for another six years, meaning that terrorism insurance will continue to be offered under very similar guidelines as it has been since 2002.
Terrorism Insurance and TRIA
Prior to 9/11, most commercial insurance policies included terrorism risk coverage as a standard part of the policy. The immediate financial toll of 9/11 has been estimated at around $100 billion, with two hundred insurers sharing in the $33 billion in insured losses in the form of property claims, business interruption, liability, workers’ compensation, event cancellation and life insurance.
Terrorism is, by its nature, unpredictable and potentially catastrophic, with the ability to incur huge costs and financial losses. As a result, reinsurers balked at providing the coverage and insurance companies accordingly stripped traditional commercial policies of their terrorism coverage and explicitly added language excluding terroristic attacks.
This left many businesses vulnerable and in need of protection from the increased threat of terrorist attacks in the post-9/11 world. The solution was TRIA, initially intended to be temporary legislation that was meant to help insurers recover and enable them to provide terrorism insurance to consumers backed by the federal government under specific circumstances.
TRIA both required that insurers offer terrorism coverage and at the same time established a backstop to prevent the industry from incurring a huge financial loss caused by a terrorist attack.
Terrorism insurance is offered separately or as a special addition—called an “endorsement” or “rider”—to your standard commercial property insurance policy. A standard business policy alone will not cover losses caused by terrorism.
Terrorism coverage is a public/private risk-sharing partnership that allows the federal government and the insurance industry to share losses in the event of a major terrorist attack. The Terrorism Risk Insurance Act (TRIA), which was enacted by Congress in November 2002, ensures that adequate resources are available for businesses to recover and rebuild if they are the victims of a terrorist attack. Under TRIA all property/casualty insurers in the U.S. are required to make terrorism coverage available.
What Does a Terrorism Insurance Policy Cover?
Terrorism insurance commonly includes property damage, business interruption and liability. It can also cover costs associated with workers’ compensation (per state laws).
Coverages typically not covered include: commercial auto, financial guarantee, burglary, surety, professional liability, farm owners, life, health, medical malpractice or personal lines.
Under TRIA, all types of losses from certified terrorist attacks are covered unless such losses are excluded by the underlying property and casualty policy. Common exclusions include nuclear, biological, chemical, radiological and cyber risks.
The exception to that exclusion is workers’ compensation policies since almost all states require employers to carry workers’ compensation and require insurers to cover losses from all causes.
Typical terrorism insurance policies apply to the domestic United States only, requiring a person to obtain special coverage for property overseas or for travel to different countries.
Frequently asked questions about terrorism insurance
Q. What is covered by terrorism insurance?
A. A commercial terrorism policy covers damaged or destroyed property—including buildings, equipment, furnishings and inventory. It may also cover losses associated with the interruption of your business. Terrorism insurance may also cover liability claims against your business associated with a terrorist attack.
Q. What’s excluded in a commercial terrorism insurance policy?
A. Depending on your state, a terrorism insurance policy may exclude coverage for fire following. Nuclear, biological, chemical and radiological (NBCR) attacks are also excluded, except in the life, health and workers compensation lines of insurance.
Cyber risks are also an emerging terrorist threat. It is possible that property damage or injuries to employees could be caused by a cyber-attack—for instance an attack that causes equipment to malfunction. On the other hand, most computer attacks are not violent and do not cause physical damage. In general, terrorism insurance is unlikely to cover a cyber-attack, and a small business concerned about this risk should consider purchasing separate cyber liability insurance.
Q. How does terrorism insurance work?
A. Losses are only covered by a terrorism insurance policy if the U.S. Department of the Treasury officially certifies an event as an act of terrorism. This requires that the act be violent and be driven by the desire of an individual or individuals to coerce U.S. civilians or government. No act shall be certified by the Secretary as an act of terrorism if property and casualty losses, in the aggregate, do not exceed $5 million. The act must also cause at least $100 million in damage to be considered a terrorist attack.
The definition of a certified act of terrorism has been expanded to cover both domestic and foreign acts of terrorism.
About 60 percent of U.S. businesses have terrorism insurance.
Here are a few factors to consider when deciding whether or not to insure yourself against terrorism include:
- Business Location—Rural and residential areas are less likely to be targeted by a terrorist attack. Commercial urban centers, as well as airports and train stations, have a higher risk for terrorist attack.
- Cost—Premiums for terrorism coverage range from $19 to $49 per million of insured value, depending on the size of the company. The expense generally represents 3 to 5 percent of a company’s property insurance costs.
- Type of Business—Certain industries—such as the energy sector—have a higher risk of being targeted for terrorist attacks. If your business is part of a high-risk industry, you may want to consider purchasing terrorism insurance. Like any insurance, you must weigh your risk when considering terrorism insurance, and getting the advice of a professional in the industry is a great idea. Industries and businesses that would commonly benefit from this coverage include:
- Tourist destinations
- Public entities
- Universities and colleges
- Airports
- Hotels
- Construction companies
- Healthcare organizations and hospitals
- Large corporations
The Secretary of the Treasury (with the concurrence of the Secretary of State and the Attorney General) must certify that the act is an “act of terrorism” under the provisions of the program in order for terrorism to qualify for coverage.
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