Terrorism Insurance Coverage

Acts of terror are an unfortunate reality of today’s world.  When these atrocities hit close to home, it’s important to understand what kind of protections your insurance coverages may provide you. 

Terrorism Risk Insurance Act (TRIA)

The Terrorism Risk Insurance Act (TRIA) was designated after 9/11 as a federal program that would create a system in which there would be public and private compensation available via the federal government and insurance companies to those who have had certain losses resulting from certified acts of terrorism.  This is referred to as the Terrorism Risk Insurance Program (TRIP).  Before September 11, 2001, commercial insurance policies typically reflected these kinds of coverages, usually free of charge.  Today, terrorism coverage is now required to be offered as a separate coverage to reduce the potential for any future uninsured losses.  Certified acts of terrorism must be declared by the Secretary of the Treasury.  TRIA has been extended several times now through December 31, 2027.  Additionally, TRIP was renewed in December of 2019 for 7 more years and is now referred to as the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA).

Terrorism Risk Insurance Program Reauthorization Act (TRIPRA)

            TRIPRA acts as a type of reinsurance mechanism for commercial insurance policies when there is a certified act of terrorism and the events meet certain triggering thresholds such as:

• Threshold for funds: Individual event losses must exceed $5 million and total industry losses from a certified act of terrorism must total $200 million before federal government fund intervention
• Individual deductibles: If total losses are met, each insurer is responsible for paying out their share of the claims before federal involvement.  The deductible equates to 20% of the insurer’s annual directly earned premiums from the previous year. 
• Co-payment: In excess of deductibles, insurers are required to pay 20% of losses with the federal government paying the other 80%
• Total Cap: All losses in a given year for both insurers and the federal government is capped at $100 billion

What Terrorism Insurance Covers

Standard commercial policies do not offer coverage for damages related to acts of terror.  Terrorism insurance is typically offered as an additional endorsement or rider to standard policies.  In the event of a certified act of terror, the policy will cover damaged or destroyed property inclusive of physical buildings, business inventory, and office furnishings.  Workers’ compensation covers employees that could be injured or killed on the job from an act of terror.   Terrorism coverage cannot be excluded in a workers’ compensation policy and it is the only line of commercial insurance coverage that does not have an acts of war exclusion.  There are also some policies that will cover losses related to liability claims and business interruption claims. 

What Terrorism Insurance Doesn’t Cover

There are still some restrictions to what terrorism insurance will cover in the event of a terrorist attack.  An act of war, even if not defined as an act of war by Congress, may not be covered.  It is assumed that damage from acts of war are not insurable because there will always be damage in war.  Additionally, certain other catastrophes may not be covered including nuclear, radiological, chemical and biological attacks.

Terrorism & Cyber Attacks           

The technological capabilities of today’s world leaves businesses and individuals vulnerable in a new way with the potential for a virtual terror attack.  The vulnerability and cost for a cyber attack are hard to determine.  Cyber terrorism is technically covered under TRIA, but it is hard to be definitive about coverages in these circumstances.  Additionally, terrorism insurance policies and stand-alone cyber liability policies are both subject to TRIPRA requirements.  Cyber liability policies protect businesses from terror attacks as well as breaches of privacy/data, data restoration, and interruption of business resulting from such failures in cyber protection.