How should insureds prioritize terrorism insurance in 2021?
Private-market terrorism insurance policies have emerged over the past two decades that offer fresh options for U.S. businesses.
As the rollout of different COVID-19 vaccines provides a glimmer of hope, 2021 is still likely to be an incredibly challenging year. The pandemic has generated tremendous economic and political uncertainty, which has long been the breeding ground for disaffection and radicalization. Even as life regains some degree of normality, there is the very real possibility of a resurgence in terrorism attacks of various kinds, by both groups and individuals driven by different motivating factors.
So as brokers review clients’ cover over the coming months, should terrorism cover be moved higher up the agenda? In a hardening market, it’s important that businesses and the brokers helping them with their insurance needs understand the different options available to them to ensure they spend valuable budget wisely.
The Terrorism Risk Insurance Act (TRIA) has undoubtedly provided peace of mind over the past two decades, enabling commercial and P&C insurers to write coverage for risks that could otherwise render them insolvent in the event of a large-scale attack. However, as a government-backed reinsurance program, it is, by its very nature, slower to change and keep pace with how fast new terrorism-related activities can develop.
How the TRIA works
As a brief summary for those of you less familiar with the program, TRIA does not try to predict risks and potential costs. It is still very much a “backstop,” with insurers bearing much of the upfront risk. It requires insurers to offer terrorism coverage in the policies they are selling and for a terrorism loss to be covered by the program, but qualifying events need to be certified as terrorism acts by the U.S. government. Critically, an incident must cause at least $200 million in losses before the insurer can seek to recover their losses.
Private-market terrorism insurance policies have emerged over the past two decades that offer U.S. businesses a real alternative, providing broader coverage and different triggers that don’t require an attack to be certified as an act of terror. They respond to any act of terrorism committed for political, religious, ideological or similar reasons — a really important point for brokers to note, as no event since 9/11 has been declared an act of terrorism with regards to TRIA. Of note: Law enforcement officials have not yet determined whether the Christmas Day bombing in Nashville will be designated as an act of terrorism.
Equally important, an incident may not generate damages anywhere near the loss level required for TRIA coverage to kick in. Standalone policies don’t have a trigger point; rather the policy is triggered when a claim is notified. For brokers with a small and mid-sized business client base and those located outside major city centers, this should be a key point to bring up in any discussion.
And while TRIA-backed policies are most often attached to a company’s property policy, meaning the coverage offered is similar to traditional property damage and business interruption, standalone terrorism policies have evolved to not only cover these risks but also non-damage business interruption (also known as restriction of access), loss of income and even terrorism liability for any claims against a business by third parties. There are also often flexible options like first-loss limits as well as the option to insure select locations or entire portfolios.
Terrorism itself has evolved
Today, we tend to see attacks more focused on causing death rather than destruction — think of the 2013 Boston Marathon bombings. There has also been a marked rise in active assailant attacks. These events are sadly becoming a familiar occurrence in cities across the U.S., from disgruntled employees to lone wolf attacks on schools, churches and businesses. The non-profit Gun Violence Archive recorded 417 events in which four or more people were shot in 2019.
The unpredictability of these events only adds to the severity of the impact on the victims.
The insurance market has responded to this development by introducing separate active assailant coverage. These policies cover businesses in the event of any premeditated physical attack that has the intention of killing or causing bodily harm. They’re not restricted to political, religious or ideological events, nor do they restrict what is considered a ‘weapon.’
More importantly, rather than focusing on property damage and business interruption, they’re focused more on the victims, customers and employees, providing customer for victim support and crisis management costs as well as legal liabilities. Loss of attraction is also generally included within the business interruption element of the cover to help the insured recover from any prolonged impact to revenue.
So if the cover offered by these standalone terrorism policies looks good, what about the cost? As mentioned earlier, in a hardening market businesses are looking even more closely at every dollar they spend.
So here’s another card to put on the discussion table: As the TRIA program uses a post-event recoupment mechanism, pricing can be erratic. It’s also often linked to the underlying property premium, which means in the current environment it is likely that terrorism prices will be on the rise even though the actual exposure a business faces may not have changed.
By comparison, standalone policies will have a rationale that is consistent, competitive and in correlation with the true exposure.
Who should have coverage?
A business doesn’t have to be targeted directly to be impacted by an attack. It may not suffer actual damage to their property but could still be denied access for days while law enforcement officers investigate an incident. Businesses could suffer a major drop-off in customers if people avoid the area after an event. Worse still, they could lose staff caught up in an event.
Standalone terrorism and active assailant insurance is there to help businesses survive in the event of such an attack. These policies offer a truly valuable alternative that any business should consider.
Ben Atkins heads up the Terrorism and Political Violence team at CFC Underwriting. With over 12 years of experience underwriting terrorism risks, Ben developed CFC’s standalone terrorism and sabotage policies in 2014 and its new active assailant coverage. He can be reached at batkins@cfcunderwriting.com or +44 (0)207 469 1723.
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