“Unfortunately, terrorism is a low-frequency, high-severity issue,” he said. “You would love to be able to transfer that risk to an insurance company if you could, but obviously in this marketplace, that might not be possible.”

Instead, he said, it becomes a matter of whether you self-insure the exposure by pre-funding for a possible loss, or just assume the risk and not set aside any funds, “but make sure senior management knows that if we get hit, well be in big trouble.”

As commercial buyers have discovered, most standard property insurance carriers are excluding terrorism, although this varies depending on whether a particular states insurance department has allowed terrorism to be excluded, and under what circumstances, he explained.

He noted that Congress has two conflicting terrorism insurance bills in a House-Senate Conference Committee. “Were all hopeful that something will come out of that with a bill that lets the insurance community feel comfortable enough to provide terrorism coverage again,” he added.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 16, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.