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Terrorism Act extended

World_trade_centerMany of you no doubt have recently received new Terrorism Disclosure notices and endorsements from your insurance companies or agents.  “What’s this all about,” you might be thinking.

It all began, of course, on September 11.

The insured property loss from the attack on the World Trade Center has been estimated at $20.3 billion by the Insurance Services Office (ISO). 

They also estimated that there were 49,000 property loss claims.  Of the total - 30,000 were for personal property, 15,000 for commercial property and 4,000 for auto damages. 

The insurance industry had clearly been unprepared for the devastating losses that occurred that day.  Policies contain a war exclusion which has been standard for many years. But was September 11 a war? 

The conclusion of the courts was no – a war is a course of hostility between sovereign nations – so the exclusion did not apply.  The property losses were settled as acts of vandalism. But the amounts were staggering for insurers whose pricing models had never contemplated such losses. 

If insurers can’t reasonably predict when and where a terrorist event might take place and how much it might cost, it seems unlikely they will be able to accurately factor such an event into the cost of insurance.

Perhaps the federal government will be permanently in the business of providing a backstop for the insurance industry when it comes to insuring terrorism.

The Terrorism Risk Insurance Act (TRIA) was created as a temporary measure to allow time for insurance companies to develop their own solutions and products to insure against acts of terrorism.  But late in 2007, President Bush signed legislation enacting a seven-year extension to the act. 

The law extends the federal program that creates a shared system - public and private compensation for insured losses resulting from acts of terrorism.  And now, domestic terrorism is included as well as foreign terrorism.

Are you covered?
Currently, workers compensation policies do not exclude loss due to terrorism or war. That means that employers with a lot of white collar workers located in office buildings are now viewed as high-risk accounts.

From a property standpoint, more than 60% of large and mid-size firms carry property terrorism insurance and the trend continues to grow. 

To view the current nationwide threat level - visit The Terrorism Research Center.


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