It’s hard to imagine an act of terrorism impacting your property, but it’s also important to be prepared. In 2002, the Terrorism Risk Insurance Act (TRIA) created a program to insure losses caused by certified acts of terrorism. As terrorist attacks can result in massive damage, landlords and other commercial property owners should consider purchasing insurance coverage for terrorism.
If you read the terms of standard commercial property insurance policies written today, you’ll notice that many exclude losses caused by terrorism. However, this wasn’t always the case.
According to the Insurance Information Institute (III), it all changed on 9/11. Prior to September 11, 2001, standard commercial insurance policies typically included terrorism coverage as part of their packages – and policyholders didn’t pay anything extra for this coverage. These days, insurers often sell terrorism coverage separately.
Before 9/11, as terrorism just wasn’t seen as much of a risk, underwriters didn’t pay much attention to it. After the attack, insurers realized that the risks had changed and that their underwriting practices needed to change, too. They started introducing terrorism exclusions and limits.
After 9/11, terrorism insurance became harder to find, but people still needed coverage. According to the Congressional Research Service, this is why Congress passed TRIA in 2002. Initially, the terrorism insurance program was a temporary measure designed to last for three years, but it has been renewed four times and is currently set to expire on December 31, 2027.
Under TRIA, insurers are required to offer terrorism coverage to commercial policyholders, but business owners are not required to purchase the coverage. If a covered terrorist attack occurs and the other criteria are met, the government covers 80 percent of the insured losses. This makes it more feasible for insurance companies to offer terrorism coverage.
You could claim that the neighborhood kids are terrorizing you by egging your property and playing ding-dong ditch, but that sort of activity isn’t going to count as terrorism under TRIA.
The TRIA program has a fairly narrow definition of terrorism. It only applies to violent or dangerous acts that result in property damage and are committed by individuals acting on behalf of a foreign person or interest to coerce the civilian population or government policy. For an act to be considered terrorism under TRIA, it must be certified by the Secretary of the Treasury. This is why the term “certified terrorism insurance” is often used.
For an act to be certified as terrorism, it must meet several criteria:
War is not covered by terrorism insurance: the III explains that war is usually considered to be an uninsurable risk. Additionally, nuclear, biological, chemical, and radiological terrorism may not be covered, and insurance that includes this coverage may be expensive.
War exclusions are not specific to commercial property insurance. According to Investopedia, war exclusions are common in auto, homeowners, renters, commercial property, and life insurance policies.
Terrorism insurance only applies to a specific set of acts, but those acts can lead to massive property damage and lost income.
Imagine you own a rental property that is destroyed in a terrorist attack. You need to rebuild the building and, in the meantime, you can’t earn rental income from the property. On top of everything, a tenant is suing you, claiming that the building wouldn’t have suffered as much damage if you had fulfilled your duty by keeping up with building codes.
According to the III, commercial terrorism insurance covers property that is damaged or destroyed in a terrorist attack. This includes buildings as well as equipment, furnishings, and inventory. Terrorism insurance can also provide coverage for business interruptions and liability claims associated with an act of terrorism.
Business owners are not typically required to maintain terrorism coverage. However, the III says that around 60 percent of business owners decide to purchase such coverage. As a landlord, you should review the insurance requirements in your state. If you are on the board of an HOA, also review the HOA’s bylaws to determine whether they require terrorism insurance coverage.
It is hard to predict where a terrorist attack might strike. However, certain areas may have higher risk.
For example, the 9/11 attacks targeted the World Trade Center in New York City and the Pentagon. The World Trade Center was a hub of business located in a highly populated area. The Pentagon is where the U.S. Department of Defense is headquartered.
Based on this, one may assume that areas with a government connection and areas with large population densities could be targeted. Other possible targets could include areas that are critical to infrastructure and public transportation.
It’s hard to know what type of insurance you need until you suffer a loss – and then it’s too late. For landlords and HOAs, property insurance and liability insurance provide a basic layer of protection. Additional coverage types, such as equipment breakdown insurance and business income insurance, may also be a wise investment, depending on your situation. Likewise, you may decide it would be prudent to purchase certified terrorism insurance.
When making these decisions, weigh the costs against the risks and consider what might happen without insurance coverage in a worst-case scenario.
Whether or not you decide to purchase certified terrorism insurance, you’ll still need other types of insurance for your property. Do you have a property to insure? Get a quote.
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