The future of TRIA
The questions surrounding terrorism insurance are complicated and, in some cases, still not completely clear.
Editor’s Note: In December 2019, President Trump signed the Terrorism Risk Insurance Program Reauthorization Act of 2019 into law, extending TRIA until 2027.
If you think that property insurance backed by the federal government’s terrorism insurance backstop will cover you for any act of terror, you might want to think again.
The current program, which was established by the Terrorism Risk Insurance Act of 2002 (TRIA), doesn’t cover as much as many people think. While it would respond to a truly catastrophic terrorist event, it offers little protection to many insureds facing less drastic losses. In fact, there’s no guarantee the program will even exist on Jan. 1, 2021.
That’s one of several reasons to consider seeking coverage in the standalone terrorism insurance marketplace. Underwriters now offer coverage that was not contemplated when the federal program began in the aftermath of the terrorist attacks of Sept. 11, 2001.
The current program is slated to expire on Dec. 31, 2020. There is bipartisan support for extending the program, which was reauthorized in 2005 and 2015 (and has since been called the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA). In fact, legislation to extend the program for ten years was recently introduced in the House. But widespread support doesn’t translate into automatic extension. After all, in late 2014, a single lawmaker’s objections led to the program lapsing for several days, which led to uncertainty in the real estate marketplace, before reauthorization occurred in January 2015.
For the act’s provisions to take effect, an attack has to be certified as a terrorist event by the secretary of homeland security, the attorney general, and the secretary of the treasury. The amount of insured damages required for an attack to be deemed covered has risen to $200 million from the original $5 million and could go higher if the act is reauthorized.
Another attack of the magnitude of 9/11 would almost certainly meet the criteria for certification. But a smaller attack on a house of worship or a hotel wouldn’t.
Policyholders buying the TRIPRA-backed coverage may not enjoy the protection they thought they were afforded — this is where the standalone market comes in. The standalone market is huge, with attractive accounts able to buy $250 million in limits very easily. The standalone market is unique in that insurers specifically define a terrorist event, and, as long as the event meets the definition of coverage, buyers are afforded coverage under the policy. There is no requirement for the government to certify it as a terrorist event. The lack of government involvement in the process is a very attractive attribute of the coverage.
In addition to offering attractive limits, underwriters have begun to offer coverage for non-traditional terrorist exposures, such as those presented by an active shooter, which some underwriters call an active assailant.
While an active shooter is not likely to cause a significant amount of property damage, such a domestic terrorist act can cause a significant amount of loss of income. For example, the 2017 Las Vegas mass shooting that killed 58 people attending a music festival led to the temporary closing of businesses in the area, where owners could not gain ingress into their properties. Even McCarran International Airport was closed down for hours.
Thus, it’s critical to make sure you have coverage for business interruption caused by a shooting incident or other acts of domestic terrorism. Consider how significant the potential loss of income could be if your firm becomes the victim of an act of terrorism. A large corporation could absorb the loss without being forced out of business. But for a small business, a loss of income or a huge liability suit could put it out of business forever.
Some insurers are also bundling crisis management services into their policies, which helps businesses handle media and public relations after the event. The aim is to get business back up and running as soon as possible. One carrier even provides a half-hour of consultation free at the front end so the policyholder can respond to queries quickly after the attack. And some underwriters are beginning to offer liability as well as property coverage under their active shooter policies.
Another thing to consider is the manner in which price is determined. With TRIPRA-backed insurance, the terrorism insurance premium is a set percentage of the overall property insurance premium, which can be very costly, especially in a market environment where property premiums are rising. In the standalone market, insurers rate accounts on their individual merit, rather than as a percentage of the property premium. This often results in more competitive premiums in the standalone market. In addition, the standalone market can underwrite a terrorism policy on a single building rather than on an entire portfolio.
To make an account attractive to underwriters, the more you are doing from a loss control or risk control perspective, the better. For example, insurers would take into consideration whether you have a crisis management program in place.
The questions surrounding terrorism insurance are complicated and, in some cases, still not completely clear. But you don’t have to answer them by yourself. You can partner with an expert in the surplus lines market who will do the heavy lifting so you won’t have to worry about the fine print.
Standalone terrorism coverage should be part of every business’s insurance program. With the gaps in coverage left unaddressed by TRIPRA-backed insurance and the possibility that TRIPRA-backed insurance may not be available after the stroke of midnight Jan. 1, 2021, that’s truer than ever.
Christa Nadler is an executive vice president and manages the Chicago property team at wholesale broker Risk Placement Services Inc, which she joined in 2006. Nadler is also active in the Wholesale & Specialty Insurance Association (WSIA) and currently serves on the WSIA’s Career Development Committee. Opinions expressed here are the author’s own.
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