Terrorism is consistently in the back of the minds of many Americans today, including U.S. business owners. Though not all make the evening news, very little time passes between attacks throughout the world.
The U.S. is no island when it comes to terrorism. History has proven we are vulnerable to these attacks as well. They happen on roadsides (New York City and Boston), in nightclubs, in shopping malls, and countless other places where no one suspects or is prepared.
Terrorism insurance can help businesses, like yours, survive the financial devastation of attacks such as this. If you’ve been considering this type of coverage, this article will provide the information you need to make sure you choose the right policy. Unfortunately, choosing the wrong terrorism insurance coverage can still leave you vulnerable to the aftermath terror attacks. Doing your research now will save you in the future, should an attack take place on your business’ doorstep.
What is Terrorism Insurance?
Since 1995, nearly 700 terrorist attacks have occurred on U.S. soil, 65 of those occurring in 2017. One terror attack in particular is a permanent memory in the minds of most Americans and changed the country forever.
On September 11, 2001, a coordinated terrorist attack took place on U.S. soil. In response to the devastation that occurred congress passed the Terrorism Risk Insurance Act (TRIA). The purpose of TRIA was to allow insurance companies to pay businesses for their losses in the event of a certified act of terrorism.
TRIA stood as a sort of “guarantee” to insurance companies that they would be able to cover their losses in the event of a terror attack so that it wouldn’t be detrimental to offer terrorism insurance protection for the companies that opted to participate in TRIA-backed insurance. Sounds like a good thing, right?
Since that time, there have been several high-profile terror attacks in the U.S., including the Boston Marathon attack, the San Bernardino attack, and the Orlando nightclub attack. The program began in 2002 and insurance companies have profited to the tune of nearly $40 billion from selling this insurance designed to protect businesses in the U.S.
Despite having three high-profile attacks on U.S. soil, these same insurance companies that have profited so well from the sale of TRIA terrorism insurance have not paid out one single dime to policyholders. Critics argue that this creates a risk-free investment for insurance companies who are under no obligation to pay out.
Terrorist attacks are unpredictable. Some believe they are only going to increase in scale and intensity. Whatever you believe will happen from a political point of view, protecting your business with the right insurance coverage is a practical matter rather than a political one. Because insurance companies have yet to provide accurate coverage for businesses, here’s what to look for in terrorism insurance so you don’t find yourself dealing with the financial aspects of these attacks.
What to Look for in Terrorism Insurance
When looking for terrorism coverage for your business, it’s very important to understand what is covered and what isn’t. Here’s what to look for.
You want to make sure your terrorism insurance policy includes coverage for property damage, as your building will most likely be heavily damaged during a terrorist attack. This should include the building contents, vehicles, and other property associated with the business.
Your policy should also cover loss of income and extra expenses, as there is sure to be some time your business is unable to function after an attack. You’ll also want coverage for employee injuries and lawsuits that could come about.
It’s a bit overwhelming to think of all the scenarios you want protection from with terrorism insurance. Here’s a quick list to consider:
- Damage to buildings and their contents (inventory, furnishings, fixtures, etc.)
- Business Interruption
- Loss of rent
- Defense costs
- First party active shooter coverage
- Biological, chemical, and nuclear coverage
- Coverage for threats
- Coverage for clubs, theatres, restaurants, hotels and more
In simple terms, you’ll want your policy to cover as much as possible, especially as attacks evolve and advance with technology. But as you’ll see in our next section, it’s not always this easy.
Insurance companies have been able to profit from terrorism policies without having to provide the coverage business owners expect. The problem is that in order for TRIA policies to pay out, the U.S. Secretary of Treasury has to “certify” an attack as a designated as an “act of terrorism”. Among other requirements, like the act being a violent or dangerous act to human life, property, or infrastructure, as part of the certification, losses (i.e. claims) must exceed five million dollars.
Some policies also exclude certain types of attacks, like biological attacks and active shooters. As you can see, it can be difficult to have an attack certified and receive coverage. An attack resulting in $4 million worth of damage would certainly be devastating but, under these stipulations, not covered.
However, not all companies require an act to be certified before they provide coverage. They also don’t have exclusions like biological, chemical, or nuclear coverage. When looking for a policy, make sure there are more inclusions than exclusions and consider what the individual risks are to your industry and location before deciding on a policy.
For most Americans, the threat of a terrorist attack is very real. That’s why it’s important to make sure that your business has appropriate coverage from an insurer that does not depend on TRIA to release funds or certify an attack as a terrorist event in order to pay out.
Look instead for companies that offer terrorism insurance coverage that includes coverage for acts of sabotage or terrorism of ideological, religious, or political purposes without having to obtain government certification as a terrorist act.
This type of coverage should meet any lender requirements that exist for terrorism insurance coverage and should provide you with peace of mind that your business is protected in moments like this without government certification that an act was certified as terrorism.
Does Your Business Need Terrorism Insurance?
If you’re still not sure if terrorism insurance is right for your business, ask yourself the following questions.
What type of business do I own?
Some businesses and industries are at a higher risk for terrorist attacks than others. These include those in the energy sector, chemical facilities, or even large financial institutions or data storage. If you run a small bakery, your risk is most likely substantially lower. If you’re unsure, speak to your insurance broker.
Where is my business located?
If your business is located in a highly populated area, you’re at a higher risk for a terror attack. Large cities and urban centers are preferred by attackers as they can do the most damage in a smaller amount of time. If your business is located in a small town hundreds of miles away from the nearest city, your risk is much lower.
Is my money better put to use elsewhere?
Though it’s affordable, you might want to consider other forms of protection first instead of terrorism insurance if you believe your risk is low. For example, small businesses are heavily hit by cyber-attacks. Though this could be considered a form of terrorism by some, it’s not covered by terrorism insurance. If you believe that there are other risks more severe than terrorism for your business, speak to your insurance broker about your other coverage options.
How Much Does It Cost?
Terrorism coverage is more affordable than most businesses think. You can easily find policies that cost between $20 and $50 for every million dollars of insured value. If you want to get a closer idea of what protection will cost you, a good rule of thumb is that terrorism coverage costs represent 3 to 5 percent of your company’s property insurance costs.
Does My Business Insurance Include Terrorism Coverage?
In most cases, no. Your businesses property insurance or other standard policies will not cover terrorism acts or related fallouts from them. This is why most businesses obtain terrorism coverage via an endorsement added to their property or liability policy.
One exception to this is fire. Some states require property insurers to cover fire damage from terrorist acts. Even if the policy doesn’t cover terrorism, resulting fire damage is. But this only applies to direct loss by fire, such as office equipment or property. Loss of business income or extra expense losses are not covered.
Terrorism is about spreading fear, confusion, doubt, and uncertainty. Dubious insurance coverage that relies on the government to release funds before it can pay out only adds to those negative feelings associated with terrorism.
Finding the right insurance protection for your business can help you shake the fears that a terrorism act can have on your business. It enables you to get the protection your business needs and deserves without concerns that it won’t be available to you when your hour of need arrives.
If you’re not sure you have the right coverage, you owe it to your business to take the time to make sure you get the right terrorism insurance coverage today.