Wk37 // 9/11 Terrorism Insurance and Payouts
Despite the terrorist attacks on the World Trade Center in 1993 and the Oklahoma City bombing in 1995, insurers did not view domestic or international terrorism as a risk that should be considered when underwriting commercial insurance policies because:
- Historic losses from terrorism were relatively small, and there was little data available to estimate future losses.
- Acts of terrorism are intentional acts designed to maximize damages and are not accidental insurable risks.
- Attacks are geographically concentrated in one area, making it difficult to spread the risk and increasing the chance of insurance company bankruptcies.
As such, terrorism coverage was an unnamed peril that was covered in most standard all-risk commercial and homeowners policies before the Sept. 11, 2001, attack. The Insurance Information Institute (III) estimates that the 9/11 attacks cost the insurance industry $47 billion (in 2019 dollars) in losses, making it the most expensive terrorist incident in U.S. history, as well as one of the largest single insured loss events in history. Reinsurers covered about two-thirds of the losses. A breakdown of the losses by specifics includes 33% for business interruption, while 30% included property losses, including the World Trade Center towers. Workers’ compensation, life, health, airline liability, and general liability insurance lines also paid out billions of dollars in claims.
After the massive financial losses from the 9/11 attack, reinsurers severely cut back on their terrorism coverage or stopped offering it altogether, putting a strain on U.S. insurers’ ability to cover the risk. As a result, the companies that continued to offer terrorism coverage charged exorbitant premiums, making terrorism insurance unaffordable and unattainable for many.
Fearing future terrorism losses were unsustainable and uncertain of the large-scale risk, insurers defined terrorism as an uninsurable risk. In October 2001, the Insurance Services Office (ISO) asked all U.S. states for permission to exclude terrorism from all commercial insurance coverage. Ultimately, 45 states; Washington, DC; Guam; and Puerto Rico approved the new policy language, with the stipulation that workers’ compensation insurance be excluded from the provision. Some terrorism coverage remained available in California, Florida, Georgia, New York, and Texas, as these states did not approve the changes to commercial policies. As a result of the terrorism exclusion, very few companies had protection against a terrorist attack a year after the 9/11 attacks.
Shortly thereafter, various industry groups called for federal intervention. The Terrorism Risk Insurance Act of 2002 was passed by Congress on Nov. 26, 2002, and signed into law by President George W. Bush.
A commercial terrorism policy covers damaged or destroyed property—including buildings, equipment, furnishings and inventory. It may also cover losses associated with the interruption of your business.
Depending on your state, a terrorism insurance policy may exclude coverage for fire following. Nuclear, biological, chemical and radiological (NBCR) attacks are also excluded
TRIA applies to commercial property and liability insurance, including excess insurance, workers’ compensation and directors and officers insurance.
Cyber risks are also an emerging terrorist threat but it is covered under cyber security policies.
Losses are only covered by a terrorism insurance policy if the U.S. Department of the Treasury officially certifies an event as an act of terrorism. This requires that the act be violent and be driven by the desire of an individual or individuals to coerce U.S. civilians or government. No act shall be certified by the Secretary as an act of terrorism if property and casualty losses, in the aggregate, do not exceed $5 million. The act must also cause at least $100 million in damage to be considered a terrorist attack.
The definition of a certified act of terrorism has been expanded to cover both domestic and foreign acts of terrorism.
Since being enacted we have no awareness of there being a TRIA payout and most of our smaller companies we insure are not targets, do not have enough to trigger the coverage and are not in an are where $100 million in damages would be feasible. Of course large corporations in large complexes in metropolitan areas should see the benefit of adding on this rider at minimal cost but for the average consumer, the requirements associated with it’s enactment put them at such a small risk category that it is not worth it.
Summer is for enjoyment not for worry
- When you are having BBQ’s the last thing you should think of is your liability and fire coverage.
- When you are going for a road trip you don’t want to be thinking of your belongings and auto coverage.
- Keep your summer going right by reviewing your coverages, getting you car tuned, keeping open flames away from the house, and investing in security systems and house sitters.
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