Terrorism Insurance: To Buy or Not to Buy
As an insurance professional, I get asked at least twice a week whether or not terrorism coverage should be rejected. I believe there is some basic information every purchaser of commercial insurance should know before making the decision about terrorism insurance.
Why do we have terrorism insurance in the first place?
This can be a long, involved history lesson that I am going to simplify for a brief overview. Essentially, the damages resulting from the 9/11/01 terrorist attacks were a huge financial hit to the insurance industry. A lot of property insurance policies provide coverage for direct physical damage by any cause of loss unless it is specifically excluded. In the aftermath of these huge losses, insurance companies began to exclude terrorism as a cause of loss. However, financing for rebuilding the damaged areas could not be purchased without coverage for terrorism. Faced with this deadlock, the US Federal Government stepped in and provided federal reinsurance for terrorism losses. This allowed insurance companies the safety net they needed to provide terrorism coverage at purchasable premiums.
What qualifies as an act of terrorism?
An act of terrorism must be certified and agreed upon by the Secretary of the Treasury, the Secretary of State and the US Attorney General. It must also meet the following requirements:
- A violent act or an act that is dangerous to human life, property or infrastructure
- Resulting in damage within the US, its territories and possessions
- Committed by someone in an effort to coerce the US civilian population, to influence US policy or to affect US government conduct
- Resulting in aggregate property and casualty insurance losses must meet or exceed $5 million
Since 2007, this program applies to domestic as well as foreign terrorism.
What is not covered by the terrorism insurance?
Terrorism coverage, except for workers’ compensation, does not apply to acts committed in connection to a war declared by Congress. There is also no coverage for nuclear, biological, chemical or radiological acts of terrorism.
So, to reject or not to reject terrorism – what do we do with this coverage? Armed with the basic information above, I believe anyone needing commercial insurance can make an educated decision about whether or not they want to spend premium dollars on terrorism coverage. Parts of the country at lower risk for terrorism events see much lower premiums for the coverage. It is a personal choice easier made when armed with information.
Information used in this blog is from “Commercial Liability, Risk Management and Insurance” edited by Mary Ann Cook