Standalone Terrorism Coverage- First Party Coverage

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This post is part of a series sponsored by TSIB.

You worked hard to manage an acceptable outcome for your insurance renewal, answered countless underwriting queries, finally give your broker the order to bind, and you find yourself with one more question to answer.

Are you accepting or rejecting TRIA?

TRIA or the Terrorism Risk Insurance Act is a government backed terrorism insurance that is offered on Liability and Property policies. It was created as a three-year program to provide stability to the insurance markets by offering to cover losses arising from a terrorist act after the attacks of 9/11.

The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA)

After the insurance industry deemed Terrorism uninsurable, the Federal Government was asked to step in and provide a backstop, much like they have done with the National Flood Insurance Program. At the time, President George W. Bush signed the Terrorism Risk Insurance Act of 2002 on November 26, 2002.

Congress authorized extensions of the act in 2005, 2007, 2015, and 2017. The latest version, 2017, was renamed to The Terrorism Risk Insurance Program Reauthorization Act or TRIPRA and provides coverage through 2027.

However, as it relates to Property Insurance, the reliance on the Government backed TRIPRA program may not be the best way to insure this exposure. In the years since 9/11 the market has stabilized, and an alternative market has been created.

Requirements

For TRIPRA to trigger, the attack needs to be certified by the Secretary of the Treasury, in consultation with the Secretary of Homeland Security and the Attorney General as an act of terrorism. For the purposes of TRIPRA, an act of terror must exceed $5M in damages. The U.S. Government’s participation would only start if there were $200M in aggregate losses resulting from such an act of terrorism.

Since 9/11, there has not been a declared an act of terrorism by those entities, including the 2013 Boston Marathon Bombings. Even though the Boston Marathon Bombings were an act of terror, the damage did not exceed the $5M threshold to trigger TRIPRA coverage. Since TRIPRA is untested, it is difficult to know exactly how TRIPRA would respond in the event of a certified act of terrorism.

Looking back at the 2017 Mandalay Bay shooter event, which was deemed to not be Terrorism, many claims remain in dispute. From an insurance perspective, the issue of terrorism claims as it relates to these types of events can take years to finalize.

Standalone Terrorism Insurance Property Policy

In contrast, a standalone terrorism insurance property policy may provide coverage for both:

  • property damage
  • loss of income/loss of use

These policies cover one individual insured, rather than an entire population area and are designed to respond to an act of terrorism committed for political, religious, ideological, or similar reasons. This level of coverage is broader and more defined – providing more certainty of coverage in the event of a loss. Fundamentally, standalone terrorism policies do not require the event to be certified as an act of terror by any government official or reach a specific loss threshold.

The pricing for this coverage may be slightly more expensive than what you would expect to pay for the TRIPRA coverage. However, when you factor in the claims scenarios, added coverage and not having to rely on the TRIPRA rules, the standalone policy is worth the added premium.

There would be an offset of the cost, as the insured does not pay the TRIPRA premium, the additional premium would not be oppressive.

In most cases, the standalone terrorism policy is designed to follow the terms & conditions of the property policy. As such, this policy effectively extends the master property policy’s coverage to include terrorism as a covered peril. The deductibles would most likely follow as well.

Going back to the original question, with the enhancements a standalone terrorism property policy offers, you may want to consider it. Reach out to TSIB to review your options and keep your company safe.

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