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
- 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.