Before September 11, 2001, most business policies included coverage for terrorism-related losses. Today, however, some types of policies exclude coverage for certain terrorism- related losses. Here’s what you need to know about covering your terrorism risks.
Although the risk of any one company or location experiencing terrorism- related losses is fairly low, if a terrorism event occurs, total losses could be devastating. What reasonable, practical steps can an organization take to protect itself from terrorism-related losses?
- Assess your risk. Conventional wisdom says that businesses in certain locations (high-rise buildings, major metropolitan areas, in or near landmark properties) or in certain industries (utilities, high technology, chemicals) face a higher risk of terrorist attack than others. Also at risk are businesses located on or near major transportation corridors.
- Protect employees and visitors. Workers’ compensation payments for deaths and injuries accounted for much of the loss related to the 9/11/01 terrorist attacks on the World Trade Center. Having emergency evacuation plans, disaster preparedness supplies, survival supplies and first aid supplies readily available can minimize loss of life and injury. Remember to review and update your plans as necessary, and to rotate emergency supplies on a regular basis to keep them fresh. A good rule of thumb is to have three days’ worth of water and food available per person, in case a widespread disaster makes leaving the premises difficult.
- Assess building security. Companies that manufacture, sell or store potentially hazardous substances should pay particular attention to sensitive areas. Is access to your premises controlled, or can anyone enter during business hours? Identification-based entry systems or posting security guards by entrances can help limit access to authorized persons.
- Protect information systems. Reliable backup systems and a disaster continuity plan can minimize data losses and help your business recover processing capabilities quickly in the event of a disaster.
- Assess building design. Companies renovating or building facilities will want to consider incorporating “defensive architecture” features into their buildings. Defensive architecture uses design features to minimize losses from terrorist attacks, as well as from other disasters, such as fire, smoke or chemical spill.
- Evaluate your insurance coverage needs. Mortgage lenders typically require commercial property owners to carry terrorism coverage. Before 9/11, commercial property policies generally covered terrorismrelated losses. After the 9/11 attacks, insurers afraid of widespread and “uninsurable” losses excluded terrorism losses from commercial property policies.
The lack of available coverage prompted Congress to write the Terrorism Risk Insurance Act of 2002 (TRIA), which required insurers to offer terrorism coverage to commercial property owners and made the federal government liable for a large share of related losses. The Act specifically included excess insurance, workers’ compensation insurance and surety insurance in its definition of “property and casualty insurance.”
But there’s a catch. While TRIA and its successor acts covered attacks involving conventional weapons, insurers can exclude property coverage for attacks with nuclear, biological, chemical or radiological (NBCR) weapons. According to a study released in December 2008 by the U.S. Government Accountability Office, most commercial policies exclude coverage for NBCR weapons. Analysts expect to see terrorist groups’ use of this type of weapon increase in the future, causing concerns about the financial impact of this type of attack. Although your property policy likely excludes coverage for NBCR weapons, most states require workers’ compensation insurers and group life and health insurance to include coverage for terrorism, including NBCR events.
For information on assessing your terrorism risks and obtaining appropriate coverage, please contact us.