Terrorism Insurance

In the days before September 11, 2001, few Americans thought about terrorism. After the terrorist plane crashes of that day, that changed.

Your insurance starts off (except for workers’ compensation) excluding losses caused by terrorism. If you want the coverage, you pay an extra premium for protection to be added.

Insurers now offer coverage in conjunction with the Terrorism Risk Insurance Act (TRIA), which provides protection for terrorist acts that fall within certain parameters. The federal law was initiated in 2002, extended in 2005, extended again in 2007, and now is scheduled to run through 2014.

Here is some general information about TRIA:

– TRIA is a federal program with mandatory insurance company participation.

– It covers foreign or domestic terrorism attacks on US property that cause at least five million dollars in damages.

– Reinsurance starts when total insured losses hit one hundred million dollars.

– The feds pay for 85% of any losses above an insurance company’s deductible.

– The insurer of record is responsible for 15% of any losses after a 20% deductible.

– Annual losses covered by the program are capped at one hundred billion dollars.

Some states require that insurance companies provide full terrorism coverage. Some states allow insurers to exclude acts of terrorism unless the insured pays an additional premium.

According to TRIA, to be certified as an act of terrorism:

– An event must be an act of terrorism.

– The event must be violent and dangerous to human life, property, or infrastructure.

– The act must cause damage either within the United States or, if outside the United States, to an air carrier or vessel or on the premises of a United States mission.

– The intent of the act must be to coerce the US population or affect the conduct of the government of the United States.

– If an act takes place and it is related to a war declared by Congress, the act may be certified for only workers’ compensation coverage. Further, no action is certified if the commercial property and casualty aggregate losses are less than five million dollars.

Therefore, a “small-scale” terrorist attack (under five million dollars in damage or not qualified as certifiable) is covered by your insurance program — with or without the purchase of TRIA coverage. If you decline TRIA coverage, you have no coverage for a “certified event.”

Insurers offer TRIA quotes at policy inception and renewal. The exception is workers’ compensation, where TRIA coverage is automatically included and cannot be removed.

I suggest that banks ask their insurance advisers to explain the full impact of a decision not to buy terrorism insurance.