Terrorism Insurance: Liability, Programs, Costs & More

The need and demand for Terrorism Insurance Programs are growing under the current geopolitical tensions and war. For example, there is a need for Terrorism Insurance Programs beyond the Terrorism Risk Insurance Act (TRIA) that was made into law by the US Congress in 2002 to respond to the attacks on 9/11. 

Published on March 22, 2022

Terrorism insurance form with personal information

Until the horrific 9/11 attacks, terrorism insurance was typically written as a no-cost inclusion in most general insurance policies because carriers had few historical losses from terrorism with scant data available to estimate future losses. Although they had the 1993 attack on the World Trade Center and the bombing in Oklahoma City in 1995, insurers did not view domestic or international terrorism as a severe underwriting risk when issuing commercial insurance policies. 

Changing Conditions Created a Need for Terrorism Coverage and Terrorism Insurance Programs

Besides the massive tragic loss of innocent lives, the damages from the 9/11 attacks amounted to the costliest terrorist incident in US history. The estimated financial toll from September 11 was around $100B. Two hundred insurers took part in the $33B in insured losses in property claims, business interruptions, liability, workers’ compensations, event, and life insurance. And the aftermath of those events was the cause of significant and ongoing changes to the insurance industry’s outlook and management of terrorism risks. 

According to the Insurance Information Institute, the 9/11 attacks triggered staggering losses to the insurance industry. Unfortunately, those losses quickly made terrorism insurance coverage too expensive when available. TRIA requires insurance carriers to make terrorism coverage available to their commercial policies, but it is optional for policyholders with no requirement to buy the coverage.

Initially, the TRIA was a temporary three-year program to have the Federal government share monetary losses with insurance carriers on commercial property/casualty claim payments due to a terrorist attack. It has been reauthorized repeatedly, with the current Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) expiring on December 30, 2027. 

What is Terrorism Insurance & Who Needs It?

While a traditional TRIPRA policy intends to fill a void for businesses seeking protection from terrorist attacks, it is not a complete solution. Instead, it has a war event certification aspect that makes it inadequate for many companies. As a result, the insurance industry answered with Standalone Terrorism insurance coverage, a specialty policy covering losses due to terrorism. 

Most Standalone Terrorism insurance programs contain property policies that protect insureds against losses caused by damage to their property, which contrasts with terrorism coverage provided by commercial property policies that cover risks of other losses. 

Terrorism insurance is purchased predominantly by organizations at a high risk of losses not covered in their other commercial property policies. Mainly because the cost of terrorism coverage from the insurers who provide them is too high or because the terrorism coverage provided by the insurers isn’t broad enough.

Types of Terrorism Insurance

Terrorism Insurance versus TRIA/TRIPRA

Post-9/11, insurers refused to provide terrorist insurance and removed terrorism coverage from traditional commercial policies that now contain explicit language to exclude terrorist attacks. The fallout from the 9/11 attacks left many businesses in need of protection against the increased threat of terrorist activities in the post-9-11 world. The government’s solution was TRIPRA, which initially was designed to be temporary legislation that would allow insurers to recover and enable them to offer terrorism insurance to consumers. Instead, it required that insurers provide terrorism insurance and establish a backstop to protect against a substantial financial loss caused if a terrorist attack occurred.

Certified Act Of Terrorism

The following description comes from the Insurance Risk Management Institute (IRMI)

A Certified Act of Terrorism is a terrorist act that is eligible for coverage under the Terrorism Risk Insurance Act (TRIA). Such acts are certified by the Secretary of the Treasury, applying criteria spelled out in TRIA. To qualify as a certified act of terrorism, the incident must: (1) be a violent act or an act that is dangerous to human life, property, or infrastructure; (2) cause damage within the United States or other areas of US sovereignty (e.g., a US embassy, airplane, ship); (3) be committed as part of an effort to coerce the civilian population of the United States or to influence the policy or affect the conduct of the US government by coercion; and (4) produce property-casualty (P&C) insurance losses in excess of $5 million. Insurers paying claims in response to certified acts of terrorism qualify for federal reimbursement.

What Terrorism Insurance Programs includes 

Terrorism Insurance Programs cover most types of losses from terrorism, including property damage, business interruption, and liability without government certification of war. Terrorism insurance policies require people to get special coverage for property overseas and travel to different countries, but not domestic travel.

Here is coverage highlights from Program Brokerage Corporation (PBC), a leading Terrorism Insurance Program provider found listed in our ProgramBusiness.com Market Directory. 

  • Limits available up to $250,000,000 for Property Damage and Business Interruption

  • Active Assailant sub-limit of $1,000,000 subject to scheduled values

  • Active Assailant up to $3,000,000 available on a referral basis

  • Sabotage coverage included

  • Threat and Hoax sub-limit of $100,000

  • Denial of Access available on a referral basis

  • Zero deductible available

  • 24-month policies available

  • Coverage available in all states

  • No minimum premiums

PBC offers Terrorism coverage for all classes of business nationwide. Policies are stand-alone and cover acts of terrorism certified or uncertified with no required claim amount.  

What Terrorism Insurance Excludes

TRIPRA excludes terrorism resulting from acts of war. Most personal and commercial insurance policies also have exclusions for warlike actions, including insurrections and rebellions, resulting in losses or damages from a war. War is considered an uninsurable catastrophic risk, and Workers’ Compensation is the only type of insurance that includes injury or death from an act of war.

Terrorism insurance doesn’t cover losses from other disasters, such as earthquakes, tornadoes, hurricanes, floods, or fires. Coverages typically not covered include commercial auto, financial guarantee, burglary, surety, professional liability, farm owners, life, health, medical malpractice, or personal lines.

Nuclear, biological, chemical, and radiological (NBCR) events may be excluded from coverage. These exclusions reflect that some human-made catastrophes are essentially uninsurable and therefore not covered by insurance. For example, under the Terrorism Risk Indemnity Act, if a state permits some NBCRs and an insurer in that state doesn’t offer them, insurers can exclude those types of events from their policies. However, if all states permit NBCRs, insurers cannot exclude them unless they have a specific exclusionary clause.

How Does Terrorism Insurance Work?

Terrorism insurance programs work to fill a need in the gap between risks and what is available beyond the TRIA. Losses are only insured under a terrorism insurance policy if certified as acts of terrorism by the US Treasury Department. This situation means that the terrorist act must be violent and be driven solely by the desire of one or more individuals to coerce U. S. civilians or government officials. 

As for TRIA, an act shall not be considered an act of terrorism if the total insured loss does not exceed $5 million per occurrence. The act must also result in at least $100 million worth of damage to be considered a terror attack. In addition, a new definition of “terrorism” has been added to include domestic and foreign acts of terrorism.

Factors to Consider Regarding Terrorism Insurance 

About 60% of US companies have terrorism insurance. When deciding on terrorism programs these factors are significant.

  • Business Location—The likelihood of a terrorist attack is lower in rural and residential areas than in urban areas. Cities with large populations and airports, train stations, and bus terminals have a higher risk of terrorist attacks.

  • Industry—Certain industries—like the energy sector—are at a higher risk of being attacked by terrorists. If your industry is a high-risk target, such as energy, banking, finance, or retail, you may want to purchase terrorism insurance.

Terrorism Insurance Costs (and what factors affect the price)

Premiums for terrorism coverage range between $19 and $49 per million of covered property, depending on the size and type of business. The cost typically represents 3 to 5 percent of a company’s property insurance premiums.

Best Terrorism Insurance Programs

Finding the best terrorism insurance program is a challenge, as with most specialty coverage. Getting good results takes time to research, so we created the ProgramBusiness.com Market Directory. We make it convenient for agents to find and connect with carriers, MGAs, wholesalers, and program administrators. Both sides use our robust agency database to expand reach with new programs and appointments to find new products and coverages.

Top results from searching for terrorism insurance programs on our Market Directory include Program Brokerage Corporation (PBC). It offers a new Terrorism product for all classes of business nationwide. The policy will be written standalone for acts of Terrorism certified or uncertified with no required claim amount. 

Consider these facts about why our terrorism coverage may be better than TRIA for many clients: 

  • Since 9/11, an event on US soil has never been certified as an act of Terrorism, which means TRIA is untested for its loss payment. 

  • TRIA sets a high bar for claims with significant fiscal policy triggers, deductibles that have increased year over year since 2016, and Federal certification.

  • TRIA is a backstop solution for the insurance industry, while our policy is tailored for your client’s individual needs.

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