Who Insures Against Acts Of Terrorism?
It happens every day and in every corner of the world. Terrorism attacks are part of our lives. What’s the situation regarding insurance?
“Terrorism insurance” can be purchased by property owners to cover their potential losses and liabilities that might occur due to acts of terrorism. It is a difficult product for insurance companies, because of the difficulty in predicting the cost of damages. The September 11, 2001 attacks resulted in an estimated $31.7 billion loss. This combination of uncertainty and potentially huge losses makes the setting of premiums very difficult. Most insurance companies exclude terrorism from coverage in Casualty and Property insurance, or else require endorsements to provide coverage.
On December 26, 2007, the President of the United States signed into law the Terrorism Risk Insurance Program Reauthorization Act of 2007 which extends the Terrorism Risk Insurance Act (TRIA) through December 31, 2014. The law extends the temporary federal Program that provides for a transparent system of shared public and private compensation for insured losses resulting from acts of terrorism.
The United States insurance market offers coverage to the majority of large companies which ask for it in their policies. The price of the policy depends on where the clients are residing and how much limit they buy.
In today's increasingly unstable international climate, U.S. companies may experience a renewed concern over the possibility of terrorist activity that could materially affect business operations. A terrorist strike could damage or destroy an insured's premises. But the threats are not limited to the site of an attack.
In they event of a terrorist attack government orders can shut down a business's operations. Operations need not be located near the attack area. The attacks in New York and Washington, D.C., had financial repercussions around the United States and the world. Whether the site is close to the attack or not, a company could suffer significant losses in business income as a result. This lost income can be recouped by turning to the business interruption insurance provision commonly present in commercial property insurance policies.
The Terrorism Risk Insurance Act of 2002 materially affects the availability and reach of business-interruption coverage. The act requires that all property and liability insurance policies cover defined acts of terrorism and, to the extent existing policies contain a "terrorism" exclusion, delete the exclusion or modify it so that it does not exclude the defined acts of terrorism that the act requires to be covered.
However, policies can exclude certain nuclear, biological and chemical elements.
In exchange for covering terrorist-induced losses, the government covers 90 percent of losses up to an annual aggregate of $100 billion in the program's first year, increasing to $150 billion in the third year.