Before the Sept. 11 attacks in 2011, terrorism was such an afterthought to most insurers that they didn’t bother to mention it in most property and casualty policies. They were essentially providing the coverage for free. As this weekend’s incidents in the New York City area and in St. Cloud, Minnesota, prove, this is a risk companies and people can’t afford to ignore.
Indeed, terrorism insurance has become a cost of doing business for companies ranging in size from Fortune 500 giants to mom-and-pop corner markets. Individuals are increasingly interested in the coverage as well. Market researcher SquareMouth found that the percentage of its customers searching for information on terrorism policies increased by 142 percent in a recent month. About 60 percent of all businesses have terrorism insurance coverage, according to trade association the Insurance Information Institute (III).
“We always get a few calls” after terrorist attacks, said Tarique Nageer, who oversees terrorism property insurance sales for Marsh, the largest insurance broker. “It’s less now than it used to be a few years ago when phones ringing off the hook. [But] it’s still top of the mind for many.”
Let’s take a closer look at how terrorism insurance works.
1) Businesses can buy two types of terrorism policies. One goes into effect if the U.S. government officially declares an act of terrorism has occurred under the Terrorism Risk Insurance Act (TRIA), a law passed after 9/11 that limits insurers’ losses in the wake of such events. Stand-alone insurance can also be triggered when conditions for a terrorist act are met under a definition agreed on between the insurer and a client.
According to Nageer, many large corporations buy both types of policies. “They may buy TRIA for their U.S. risks, and they may buy stand-alone terrorism policies for their assets outside the U.S.,” he said.
2) Who are the main buyers? According to Nageer, the biggest buyers are real estate firms in New York, San Francisco and Washington, D.C., and other high-profile markets, along with financial and educational institutions. Small businesses, particularly those near high-profile targets, also buy the coverage. He estimates that insurers collect $500 million in terrorism premiums annually.
3) Who are the main sellers? Lloyd’s of London (LYG), AIG (AIG ), XL Group, Beazley and Hiscox. According to the III, premiums for terrorism coverage range from $19 to $49 per million dollars of insured value, depending on the size of the company.
“One of the main drivers for buying terrorism insurance is you don’t have to be the target to be a victim of a terrorist attack,” Nageer said.
4) What’s covered? Damages to property and inventory. Companies also can purchase “business interruption” coverage that would go into effect if they’re unable to operate because of an attack.
5) What isn’t covered? Often, nuclear, biological, chemical and radiological (NBCR) attacks. Cyber-risks also are usually covered under separate policies.