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.

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.

Who Needs Terrorism Insurance Coverage?

Undoubtedly not every business needs terrorism coverage. A 2014 report indicates that around 60% of commercial policyholders have obtained 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

Since it’s almost impossible for underwriters to accurately calculate the risk of terrorist attacks, it’s understandably difficult for business owners to weigh the risks of needing the insurance against the cost of coverage. It’s important that you speak with an experienced insurance agent to help you navigate this unique commercial insurance offering.  Contact us with your questions.

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