Small businesses should explore whether they are covered for lost equipment, business interruption and liability in the event of a terrorist incident.
No one was hurt when a homemade pipe bomb exploded in a garbage can in Seaside, New Jersey, shortly before a charity run to raise money for U.S. Marine veterans last fall. Authorities subsequently traced the bomb, along with one that exploded in New York City later that evening, to Ahmad Khan Rahimi, who pleaded not guilty to charges related to the blast and remains in custody awaiting trial.
But for Jersey Shore Restrooms owner Donald “Buddy” Van Sant, the Seaside bomb struck close to home. His business had a contract to provide portable restrooms for the Semper Five race, and the garbage can where the bomb exploded was just 50 feet from four of his units. None were damaged, but the episode got Van Sant to thinking how much worse it could have been.
What, he asked, if the bomb had been planted in one of his restrooms instead of a garbage can? And that sparked another question — should he get terrorism insurance?
It’s a question many contractors probably should ask — contractors like Van Sant who provide services for big public events, but also others, even if they’re far from big metropolitan areas.
Terrorism — whether from foreign-inspired movements or homegrown extremists, and whether organized acts of war or haphazard “lone-wolf” attacks — remains a continuing concern, as weekly headlines point out.
The phrase “terrorist attacks” usually brings to mind dramatic events, such as the 9/11 attacks that brought down the World Trade Center or the 1995 bombing of a federal office building in Oklahoma City that killed 168 people. But most such events are much smaller in scope. That makes it a lot more challenging to figure out whether terrorism coverage is necessary. For answers, Pumper magazine checked with the Insurance Information Institute and its terrorism expert, Claire Wilkinson, as well as additional sources. Here’s what we found out.
What is terrorism insurance?
Terrorism insurance covers losses due to a terrorist attack. Before 2001 “it was effectively free of charge,” Wilkinson says — simply part of the standard business owner’s insurance policy covering property and casualty losses. The severity of the 9/11 attacks led insurers to create separate terrorism insurance that “more adequately covered current risks.”
Who needs terrorism insurance?
“Small and midsized businesses generally have not been considered likely targets of terrorism,” Wilkinson says — especially those away from the big cities. As a result, many may not have terrorism coverage. But recent events suggest it’s time to take a second look.
“Attacks have gone from being buildings in major metropolitan areas to smaller attacks,” she points out. Many, she adds, are “committed by ‘lone wolves’ or small groups inspired by certain terrorism activities” — not just conducted by organized networks.
The bombings in New York and New Jersey, which triggered Van Sant’s question, showed that “small businesses and midsized businesses are perhaps more vulnerable these days than they once were.”
What does terrorism insurance cover?
Damaged or destroyed property, including buildings, equipment, furnishings and inventory. Some policies also cover losses incurred when an attack interrupts business, and may cover liability claims as well, according to the Insurance Information Institute.
Why won’t my general insurance policy cover that?
The 9/11 attacks brought to light the much greater risk associated with terror attacks, and therefore the need to treat it as a separate line that insurers could adequately cover.
“After 9/11, terrorism insurance was very hard to find and had become very expensive,” Wilkinson says. In 2002, Congress passed the Terrorism Risk Insurance Act (TRIA), setting up a federal “backstop” to help cover excess losses from an attack. “Since then the costs have come down and it’s affordable, in large part because of the federally backed program. Insurers now are more confident in providing coverage.”
The TRIA has been periodically renewed. In 2015, Congress passed a new reauthorization extending through 2020. For losses to be eligible for coverage through the federal TRIA, the U.S. Department of the Treasury has to officially certify an event as an act of terrorism. Property and casualty losses must exceed $5 million, and “the act must also cause at least $100 million in damage to be considered a terrorism attack,” the institute says in a Q&A posted on its website.
It’s worth noting that the provisions of the act have never been triggered. In fact, as pointed out by a 2016 report from Marsh LLC, a major insurance broker and consultancy, the government has never officially certified an event as terrorism under the act — even those, like the 2014 Boston Marathon bombing, that political leaders have labeled terrorism.
But wait — what happens if the losses are less than the $5 million threshold, or if the incident doesn’t get certified as a terrorism attack? Will small businesses be left high and dry?
That possibility also points to why businesses where the risk is greatest need separate terrorism coverage. “Standard business insurance policies typically exclude terrorism coverage, which is why businesses should purchase separate terrorism coverage,” Wilkinson says. “A broader insurance policy that covers noncertified terrorism events is available on the stand-alone terrorism insurance market, where policies are not backed by TRIA.”
What if my insurer claims that my business is too risky, perhaps because of where I’m located? Can I be denied coverage?
No. The TRIA and subsequent laws reauthorizing the program require insurers to offer business owners the opportunity to buy terrorism insurance coverage, Wilkinson says.
How do small-business owners know if they’re covered?
Ask your insurer directly, Wilkinson advises. It’s typically excluded from your standard policy; you need to be sure what your policy actually says.
That’s critical to ensure you cover the gap for incidents that don’t get certified under the TRIA. Otherwise, she says, “a business owner could be liable for damages between their deductible and the $5 million threshold set under TRIA, depending on the terms of their policy.
“This is why it’s important for businesses to assess and discuss their individual risk and exposure to terrorism with their agent, and address any potential gaps in coverage ahead of time.”
How much does terrorism insurance cost? And how much do I need?
The Insurance Information Institute reports the premium cost ranges from $19 to $49 per year per million dollars of insured value. “The expense generally represents 3 to 5 percent of a company’s property insurance costs,” the institute says. Get at least enough to cover the value of your assets.
Adds Wilkinson: “It depends on what kind of business you own, what are the risk characteristics, and where are you located. There are all manner of risk characteristics that might be very different to another business operating in a different part of the country.”
Check with your broker — and be willing to shop around to make sure you’re getting the best terms available in your area. Also be sure to ask what the deductible is and what the fine print will cover — and won’t cover. The answers you receive may help you decide whether it’s worth it in your situation.
Are there other specialized insurance provisions I should be worrying about?
“With many businesses having increased amounts of data stored online, I would definitely recommend asking about cybersecurity insurance,” Wilkinson says. With a surge in extreme weather events, she adds, it’s also worth checking if you might need flood insurance.
While you’re at it, check on your umbrella policy. An umbrella policy provides additional insurance for liability if someone is hurt on your premises or sues you for damages in association with your business. The typical umbrella policy provides at least an additional $1 million in coverage over and above your primary business policy, Wilkinson says. You may want to evaluate whether you need more. Some insurers may recommend as much as $5 million, but once again, you’ll need to decide what your budget allows. And you should check as well what exclusions the policy has, and whether other components of your insurance coverage will make up for them.