Q: What exactly is terrorism insurance and who determines what qualifies under its definition?
A: Terrorism insurance covers property damage and other business losses associated with terrorist acts. The U.S. Department of the Treasury is responsible for officially certifying whether an event qualifies as a terrorist act for insurance purposes.
Q: How has terrorism insurance changed since 9/11?
A: Prior to 9/11, insurance companies offered terrorism coverage to commercial customers for little to no charge. In November 2002, Congress enacted the Terrorism Risk Insurance Act (TRIA), which was intended to provide some measure of support to the insurance industry by having the government share the risk of loss from future foreign terrorist attacks. Once TRIA was signed into law, insurers began to reassess terrorism risk (which is largely affected by location) and businesses in major urban areas considered to be potential targets now have higher rates. TRIA has been extended a number of times, most recently by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA 2015), which amends the Act’s expiration date to December 31, 2020.
Q: How does the Treasury determine an event is terrorism?
A: To qualify as an act of terrorism, an attack must be certified and agreed upon by the Secretary of the Treasury, the Secretary of State and the U.S. Attorney General. It must also meet the following requirements:
- The act was violent or a danger to human life, property or infrastructure.
- The act resulted in damage within the U.S., its territories and possessions.
- The act was committed by someone in an effort to coerce the U.S. civilian population to influence U.S. policy or to affect U.S. government conduct.
- The act resulted in aggregate property and casualty insurance losses that exceed $120 million for calendar year 2016, $140 million for calendar year 2017, $160 million for calendar year 2018, $180 million for calendar year 2019 and $200 million for calendar year 2020 and any calendar year thereafter.
Q: What isn’t covered by standard terrorism insurance?
A: While it is important to know what is covered by standard terrorism insurance, it is just as important to know what isn’t covered. For starters, it 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. Furthermore, the recent trend of smaller, “homegrown” terror attacks may not meet the federal definition of terrorism. The insurance industry is working to provide new products and solutions for business interruption and indirect losses related to these smaller-scale attacks. Potential claims and issues related to property damage from a smaller attack can be outweighed by business disruption costs if, for example, a city or region were put under a mandatory curfew. The policies available have not been designed to address these exposures.
Questions frequently arise on how TRIPRA 2015 policies would respond to cyber terrorism. Some cyber policies currently contain a much broader standard for defining terrorism – so broad that it might not meet the standards under federal law. Instead of a violent or disruptive act, some policies allow for coverage of threats or the use of disruptive activities against a computer system. Many insurance experts believe it’s unlikely that TRIPRA 2015 would respond to losses covered under cyber policies. The issue revolves around the language of TRIPRA 2015, which is silent on cyber as a vector attack. However, any cyber terrorism event that meets the TRIPRA 2015 prerequisites – including being certified as terrorism by the Secretary of the Treasury – should be eligible for coverage.
New Threats, New Coverage
The insurance industry is changing and introducing new products in the marketplace – some with broader coverage terms than those included in the standard TRIPRA 2015 policies offered by most insurance carriers. Coverage options now include incidents with active assailants, as well as policies that address chemical, biological, radiological and nuclear risks. The new products may not require actual physical damage to a location and can cover things like business interruption, extra expense and loss of rental income. As terrorism trends continue to change, it is important to ensure your business is appropriately covered with the latest policies designed to address this evolving risk. For more information, contact SilverStone Group’s Risk Management Team.
This article originally appeared in the 2016 | ISSUE THREE of the SilverLink magazine under the title “Terrorism Insurance – Trends & Changes.” To receive a complimentary subscription to the SilverLink magazine, sign up here.