Should your business have terrorism insurance?

By Higginbotham on April 25 , 2016

Terrorism Insurance

The terrorist attacks of September 11, 2001, were a game changer for businesses in the U.S. In a few tragic moments, it became clear that our businesses are just as vulnerable to man-made disasters as they are to natural disasters. Those attacks resulted in an estimated $40 billion in insured losses.

Struggling to accurately model or estimate terrorism exposures, much of the insurance industry bailed out of the market for terrorism coverage. That left many businesses hanging with no way to buy the coverage – and created a serious threat to industries where terrorism coverage was required by lenders and investors such as real estate, transportation, construction, energy, and utility sectors. In short, it put the entire national economy at risk.

That’s what prompted Congress to enact the Terrorism Risk Insurance Act (TRIA), signed into law in November 2002. The Act created a federal financial safety net in case of large-scale terrorist attacks, and required business insurers to offer terrorism coverage. In January 2015, the Terrorism Risk Insurance Program Reauthorization Act of 2015 was passed, extending the TRIA through 2020.

That’s good news, because the risks are growing.

With terror threats to the U.S. homeland and American interests around the globe on the rise, business owners can no longer ignore this risk.

What would happen if an attack happened at or near your business? On top of the possibility of a tragic loss of life, the event could cause catastrophic damage to your operation. In short, it could ruin you. Just ask those businesses near Ground Zero in lower Manhattan in September 2001, or more recently, near the Boston Marathon bombing site in 2013.

Even if your business doesn’t suffer direct damage in a terrorist attack, just being in the vicinity can ruin you. If the entire area becomes a crime scene and is closed off for a week or more, sales come to a standstill. Would your business ever be able to recover? Many don’t.

What does terrorism insurance cover?

It’s not uncommon for businesses to have gaps in their insurance coverage relating to terrorism and not even realize it. Most commercial insurance policies have exemptions relating to terrorism, so to get coverage, you need a special endorsement added to your standard commercial policy. Also, losses are only covered by terrorism insurance if the U.S. Department of the Treasury officially certifies an event as an act of terrorism.

In general, commercial terrorism covers damaged or destroyed property, including buildings, equipment, furnishings, and inventory. It may also cover losses associated with business interruption and liability claims against your business associated with a terrorist attack. But there are also exclusions. Terrorism insurance doesn’t cover fire following a nuclear, biological, chemical, or radiological (NBCR) attack, or a cyberattack.

Does your business need terrorism insurance?

Take time to analyze your current insurance coverage and determine if you’re protected in the event of a terrorist attack. A few factors to consider when deciding whether to purchase this coverage include:

  • Your business location. Obviously, rural and residential areas are less likely targets of a terrorist attack than commercial urban centers.
  • Type of business. Some industries are just naturally at higher risk such as the energy sector. If you’re in a high-risk industry, terrorism insurance is a good idea.
  • Cost. Premiums for terrorism coverage generally range from 3 to 5 percent of your property insurance costs.

The surest way to determine what coverage you need? Talk to the business insurance experts at Higginbotham Insurance. We’ll make sure you’re covered for today’s growing risks so you can stay in business – no matter what.

Related: Business interruption insurance: A lifeline to recovery


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