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Terrorism is Evolving – Our Insurance Decisions Need to Change

The nature of terrorism, and insurers’ actions, mean you need to be aware

Following September 11, the federal government created the Terrorism Risk Insurance Act (TRIA) and defined a “certified act of terrorism.”  This worked well for the buyers of insurance initially.  However the terrorism insurance scheme has become outdated, and the insurance industry has also perverted the process.  With awareness, you can protect yourself as a business owner.

There are two issues:

The insurance industry has gone to the point of excluding more than “certified” acts of terrorism, so that the buyback of terrorism coverage (opting to “accept” the offer of terrorism insurance) will or can still leave a gap in the coverage with respect to non-certified events.  Thus you would be exposed without coverage to events like the Boston Marathon Bombing (never certified), or the recent events in San Bernadino (probably will not be certified).  We wrote extensively on this particular part of the problem and you can read that analysis .  (Not all insurers have taken this approach of excluding non-certified even if you purchase certified; this is more prevalent in the “surplus lines market” with insurers such as Lloyd’s of London).

The second issue concerns the purchase of the terrorism extension on liability policies.

There are two separate decisions to be made in general:

  1. If we own and insure property, do we want terrorism coverage in the event of terrorism-caused damage to the property itself? …. and
  2. Do we want the terrorism extension on our liability policy in the event we are alleged to be legally liable to others for bodily injury or property damage from a terrorist event.

Here’s how the changing nature of terrorism impacts that decision:

Originally we thought of the following as being the major targets of terrorism:

The concept was that the terrorists would go for the greatest carnage possible, generating the largest worldwide headlines.  Under this model, owners of the target properties and their security firms have had a clear liability exposure.  Other property owners were not likely to be targeted and would not reasonably be held liable if the unexpected were to happen.

Now, under conditions of smaller, more frequent attacks, the liability equation might be altered.  Experts in terrorism now point to a different model involving:

The news is full of talk of “the new normal,” and speculation we will become an Israeli-like permanent security state.

If terrorism attacks become more diverse, more frequent and more target- neutral, terrorism becomes like any event that causes injury and leads to lawsuits.    We have liability insurance for this in general, but now it may be excluded by a terrorism exclusion (excluding either certified or non-certified, or both) if it happens to be terrorism-related.   So it has come full circle.  Terrorism was once thought of as having so massive a loss potential that the insurance industry could not handle it and they would need the backing of the gargantuan federal government in order to pay the claims.  Now, though, if the exposure becomes more like the multitude of other loss-causing perils, but the exclusions remain, it will be the unsuspecting little guy who pays the bill, not his or her insurer, a truly unique (and unfortunate) situation.

Plaintiff attorneys are right now crafting and executing their theories of liability related to San Bernadino and Orlando.  Business owners and property owners who are victims of these terrorist attacks will experience  follow-on attacks by the plaintiffs and their lawyers.

Our recommendations to clients are now evolving.  In the past we purchased terrorism on property policies in the vast majority of  cases, but on liability to a much lesser degree.  We now see the liability exposure increasing, and will recommend terrorism coverage in many more cases.  Again, for a primer on this difference between certified and non-certified, and how you can protect yourself walking through that minefield, please read The Precarious State of Terrorism Risk and Insurance.

© Licata Risk & Insurance Advisors, Inc., 2016

Aug 03, 2016



Licata Risk & Insurance Advisors, Inc.
137 South Street, Second Floor
Boston, MA 02111-2848
617-451-2140     advice@licatarisk
LicataRisk Advisors is an independent risk management and insurance consulting firm. We are not brokers and we do not sell insurance. We are not connected to any insurance company or product in any way and do not receive commissions. This is an important difference as you will have an expert on your side who is only committed to you.