Businesses today are tasked with identifying risk exposures that are almost impossible to predict. Events like the San Bernardino, California, attack that killed 14 people at a social services agency’s employee holiday party have put terrorism high on the list of risk exposures that businesses worry about.
Imagine that a terrorist attack destroys part of your business. What would you do? Do you have a business continuity plan to keep your doors open? What if your largest vendor’s or client’s operations were destroyed? Would insurance cover your operations? Would it be business as usual after the event?
A standard business insurance policy does not cover losses caused by terrorism. That’s likely why 60% of U.S. businesses now have insurance terrorism coverage. But if you haven’t yet made this move, here’s what you need to know about terrorism insurance.
Events such as the 1970s and 1980s IRA bombings in the United Kingdom prompted businesses there to carry terrorism insurance. On the other hand, coverage for terror activity in the U.S. during that period was almost an afterthought. It was often included in property and casualty policies because the chance of a terror attack was so unlikely. The September 11, 2001, attacks reshaped the way many industries operate, including insurance. Losses from that event were so great that insurance companies began limiting or eliminating any terrorism coverage, creating a massive shortage.
In response to 9/11, the federal government created the Terrorism Risk Insurance Act (TRIA) in 2002, a backstop that allows insurers to share the cost of unpredictable terrorism events with the federal government. The program was updated in 2015 and extended through 2020 as the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA). Here’s how it works: An act of terrorism must first be certified by the Department of Treasury in consultation with the Secretary of Homeland Security. Losses must be at least $5 million for an event to be certified. However, TRIPRA will not kick in unless losses exceed $100 million, with a total cap on assistance at $100 billion.
Is your business covered?
Terrorism insurance, which is offered as a part of or as an endorsement of commercial property and casualty insurance policies, covers property damage and some liability claims made against a business. But it may also cover business interruption, a much-needed coverage if you’re left without the ability to operate for days or even months following a terror attack. If business interruption insurance isn’t covered under your terrorism policy, check with your broker. The requirement for business interruption insurance goes well beyond terrorism. Your ability to function can be impacted by natural disasters, such as storms and earthquakes.
Quote"When creating your emergency plan, consider alternative ways to locate and contact all employees."
Acts of terror are unpredictable, which can make it difficult to assess whether or not terrorism insurance makes sense. One consideration is location: Businesses in dense urban areas like Boston, New York, Philadelphia, Washington, D.C., London or Paris, are at a higher risk for a terror event. However, the recent attack in San Bernardino was a grim reminder that terrorism can strike in smaller cities.
The type of industry is another consideration. While any business could be a target (the November 13, 2015, attacks on Paris restaurants and a music venue are prime examples), specific industries are considered high-risk targets. Industry and location can also affect premium.
Beyond terrorism insurance, there are steps you can take to protect your business:
- Develop an emergency preparedness, business continuity plan and recovery processes.
- Devote resources to disaster training for employees so that they will know how to keep the enterprise up and running after an emergency.
- Establish a safety committee to address employee education, infrastructure and business continuity, and address these key areas on an annual basis.
After the 9/11 attacks, it took days for some of the impacted businesses to contact survivors. When creating your emergency plan, consider alternative ways to locate and contact all employees. For example, require a check-in system using email, text, or telephone. If you issue company cell phones, consider utilizing the “Find my iPhone” app to help locate employees. Communication with workers is key in the aftermath of a terrorism act or catastrophic event. Planning ahead (and informing your employees) can help streamline your recovery process.
Additionally, make sure you have emergency supplies on hand, such as water bottles, non-perishable food, flashlights, batteries and first aid kits, and let employees know how to access these items in case of an emergency.
While the chance of a terrorism act hitting your business may be low, there is no time like the present to address the risk. It’s vital to determine your risk and plan how to act if the worst happens.
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