Can you get terrorism insurance for your business?

Robert DiGiacomo

For business owners worried about the impact of a terrorist attack, the federal government has got your back.

The Terrorism Risk Insurance Program TRIP) was enacted in the wake of the Sept. 11, 2001 attacks to provide a safety net for the insurance industry to be able to write policies to protect businesses against acts of terrorism, according to Ron Robinson, chair of an insurance law subcommittee at DRI, a group representing defense lawyers and in-house counsel.

terrorism insuranceThe federal program acts as a re-insurance program for the private sector. This means the government will cover terrorism claims that go beyond the level covered by private insurers.

Robinson says TRIP is similar to the Federal Emergency Management Authority FEMA), which steps in during emergencies when local and state resources are tapped out.

"If there is a catastrophic event, there is coverage," Robinson says. "It's like FEMA for terrorism."

TRIP was renewed by Congress in 2007 and is set to expire at the end of 2014, unless further action is taken. A bill to renew the law has been introduced in the House.

Can you get terrorism insurance for your business?

For a business to be covered by TRIP, they must first take out a terrorism insurance rider on their liability policies, according to Gene Fairbrother, lead small business consultant at
National Association for the Self-Employed. With rates starting at as little as $15 a month, it's a no-brainer, Fairbrother says.

"If the federal government declares that a terrorist act has occurred and businesses have terrorism insurance, they may be able to recoup some of their losses," he says.

If the business was damaged by an event such as a riot) but it isn't declared a terrorist act, the business likely would be able to recover damages under its liability policy, Fairbrother says.

According to Seattle-based insurance consultant Dan Weedin, some insurers will include TRIP in business owners' policies for no additional charge. But unless TRIP is included or added to the policy, terrorist acts are not covered under standard plans.

"In all cases where this is any additional premium for TRIP, the insured may reject coverage," Weedin says. "It will always be included in their policy at the additional charge, unless they send in a signed rejection."

How terrorism insurance works

TRIP, which is administered by the Department of Treasury, can be activated when four conditions are met, a department spokeswoman says.

These conditions include:

  • An event, such as the April 2013 Boston Marathon bombings, has to be certified as an "act of terrorism" by the U.S. Treasury Secretary along with the Secretary of State and Attorney General.
  • The event must be "a violent act" or one that is "dangerous to human life, property or infrastructure."
  • It must have caused damage in the U.S. or to an air carrier or vessel or "the premises" of a U.S. mission.
  • It must have been part of a plot "to coerce" the public to persuade using force), change policy or impact the U.S. government's actions.

What's more, for TRIP to be invoked, the act of terrorism must have resulted in claims that exceed $100 million, according to the U.S. Department of the Treasury.

Before, after 9/11

Prior to Sept. 11, 2001 attacks, businesses didn't purchase terrorism insurance because it seemed like an unnecessary expense, given the rarity of such incidents in the U.S., according to Howard Mills, director and chief advisor of Deloitte's insurance industry group.

After the Sept. 11 attacks, "everyone wanted it and no insurer) wanted to write it," Mills says of terrorism insurance.

"Developers couldn't get terrorism coverage. We saw an immediate impact that hit the entire country because of 9/11," Mills says.

Having TRIP in place creates a "back stop" that allows the insurance industry to cover terrorism risk, Mills adds.

"Without the back stop, you can't cover) it, because it would be impossible to model or predict," he says.

Will TRIP apply to Boston?

It's unlikely TRIP will be used in the aftermath of the Boston attacks because the property damage totals will likely fail to meet the minimum thresholds, Mills says.

"The bombs were designed to hurt people, so they didn't do a lot of major property damage," he says.

However, the impact of the attacks could be felt by anyone promoting large-scale concerts, sporting events or major festivals throughout the U.S.

Organizers of such events "clearly are going to have to get terrorism insurance," Mills says.
"The Boston attacks show you don't need to bring down an airliner. Two idiots with a pressure cooker can terrorize a great American city," Mills adds.

TRIP's future unknown

As Congress mulls TRIP's renewal, one issue is whether terrorism insurance should become mandatory for businesses and events, given the possibility of random attacks.

"The argument is we're going to experience mainstream terror -- Boston is an example of it," Robinson says.

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