Prior to 2002, businesses who suffered damages as a result of a terrorist act, did not have coverage in their commercial insurance policies because this peril was specifically excluded. Then, on September 11, 2001, terrorists, with no respect for property or human life, inflicted unbelievable damage on the Twin Towers and the Pentagon, and everything changed.
Responding to the billions of dollars in damage and loss of life, the U.S. congress passed legislation that would make it possible for every business, big or small, to obtain terrorism coverage that would pay for damages resulting from a terrorist act. This legislation is known as the Terrorism Risk and Insurance Act of 2002, or TRIA.
What is the TRIA and How Does it Work?
This legislation mandated that all commercial insurance customers be offered terrorism coverage as an endorsement (add-on) to any commercial policy or as a separate policy. The government participates with the insurance carriers by helping assume a large portion of the terrorism risk.
If, for example, your business owner’s policy has coverage for your building and the contents, damages resulting from a terrorist act will not be covered unless you have purchased Terrorism Insurance which eliminates the terrorism exclusion normally found in the policy. The TRIA is administered by the Treasury Department, and this department has the authority to declare whether an event is considered an act of terrorism in order for the coverage to be triggered. There are four criteria that must be met before an act is considered terrorism:
- The event is considered an act of terrorism.
- The event is violent and dangerous to human life, property, or infrastructure.
- The damages happen within the U.S. (U.S. air carriers, vessels, and US missions included).
- The act is committed by an individual or individuals in an effort to coerce the US civilian population or to influence the policy or affect the conduct of the US government by coercion.
The following stipulation applies when certifying acts of terrorism: the event cannot be certified if it doesn’t result in property and casualty losses that exceed $5 million in the aggregate or the act is committed as part of a declared war by the Congress.
What is Covered under Terrorism Insurance?
Terrorism Insurance provides coverage for damages to buildings, equipment, furnishings, and inventory, just like your business owners or commercial property policy. It will also provide coverage for business interruption in most cases, and it provides coverage for liability claims against the business as long as they are terrorist related. Since there is no exclusion for terrorism on your Workers’ Compensation insurance, terrorism is not an issue with this coverage.
How Much Does Terrorism Insurance Cost?
Premiums for terrorism coverage will vary depending upon your business' geographic location and the size of your business. The rates, which are approximately 4 percent of the business' property insurance premium, typically fall between $20 to $50 per million of insured value. Business' located in larger cities or near crucial infrastructure will typically pay at the high end of the scale. For example, a small retail store in the suburbs will typically pay about $5 in additional premium for coverage, whereas the same type of business in a metropolitan downtown area would pay $100 additional premium.
Most excess/surplus lines insurance companies (Lloyd’s London), will charge between $100 to $150 as a flat rate for terrorism coverage.
What is Not Covered Under Terrorism Insurance?
Depending on the state your business is located in, your terrorism coverage will typically exclude damage resulting from nuclear, biological, chemical, and radiological attacks. And, it’s important to note that losses due to terrorism threats are not covered, only terrorism attacks. These exclusions, however, would not affect your workers’ compensation coverage.
If you are considering adding terrorism coverage to your commercial policy, you should consider the location of your business, the industry you are in, and whether your type of business is considered a high-risk business before making your decision.