Filed Under:Markets, Commercial Lines

Terrorism risk insurance: Trends, take-up & pricing

The meaning of the word terrorism has changed since the 2001 attacks of Sept. 11, 2001. (Terrorism word cloud Stock photo ID:55523804)
The meaning of the word terrorism has changed since the 2001 attacks of Sept. 11, 2001. (Terrorism word cloud Stock photo ID:55523804)

A few years ago the word “terrorism” generally meant a large-scale attack, similar to the 9/11 attacks in New York City and Washington, D.C., or the London Transport bombings in 2005.

The acts were generally carried out by members of radical organizations, aimed at achieving an ideological, religious or political goal. More recently, the nature of the attacks has changed, with “lone wolves” or small groups choosing softer targets such as movie theaters, night clubs or rock concerts to make a statement of some kind.

Despite high cost in lives and suffering, these attacks typically cause minimal direct damage to property, but can bring indirect costs through business interruption, notes Marsh’s recently released "2016 Terrorism Risk Insurance Report." For many organizations, the changing pattern of terrorism risk has them examining their insurance coverage to determine whether they’re adequately covered for business interruption and related losses. Businesses are also trying to prepare for potential losses from cyber terrorism and other events.

In the United States, thanks to the Terrorism Risk Insurance Program Reauthorization Act of 2015, businesses have a federal backstop against terrorism-related losses. Before provisions of TRIPRA can be triggered, however, several criteria must be met, among them that insured losses must be more than $5 million and the event must be certified by the government as an act of terrorism — which hasn’t happened since the federal law was first enacted in 2002. The report notes that the law — and the fact it has never been used — is credited with keeping terrorism insurance markets relatively stable and costs generally low.

Related: Better late than never: Obama signs TRIA into law

Boston marathon bombing EMTs treating injured

Boston marathon bombing: In this April 15, 2013, file photo, medical workers aid injured people at the finish line of the 2013 Boston Marathon following an explosion in Boston. Three people were killed and more than 260 were injured.  (Photo: Charles Krupa/AP Photo)

What coverages are companies looking for?

The report found that the overall take-up rate for TRIPRA coverage in the U.S. increased slightly in 2015, but has remained in the 60% range since 2009. As an alternative to TRIPRA, some companies are opting for standalone property terrorism insurance. A standalone policy doesn’t require a certified act of terrorism for coverage to be triggered, unlike TRIPRA coverage, which typically is made available within an all-risk property policy.

In addition, businesses are looking for coverage enhancements that consider such issues as:

  • Active shooter situations and resulting consequences.
  • Extra expense for evacuating people due to a threat.
  • Contingent interruption of operations.
  • Canceled reservations.
  • Loss of attraction.

Companies also are looking to mitigate risk from instances of nonphysical damage and situations involving active assailants or shooters, terrorism liability, damage resulting from a cyber event and nuclear, biological, chemical, and radiological risks. Carriers are structuring the policies as endorsements to standalone property terrorism insurance policies or as separate policies.

In addition, companies are asking for political violence insurance. Standalone property terrorism insurance provides coverage for the physical damage and business interruption that can result from acts that are motivated by politics, religion, or ideology, the report explains. Political violence insurance provides coverage related to war, civil war, rebellion, insurrection, coups d’état and other civil disturbances.

Related: Looking to expand in another country? Check the political risk first

Northeast United States

Marsh's report shows a higher percentage of companies in the Northeast have purchased property terrorism insurance, which the report attributes to the concentration of large metropolitan areas, including Washington, D.C., and New York City. (Photo: iStock)

Take-up rates and cost

The report includes detailed information about take-up rates for terrorism insurance, observing that there are significant industry variations, depending partly on whether the specific industry faces exposures in central business districts and major metropolitan areas that are perceived as being at higher risk for terrorism. Some statistics:

  • Media companies purchased property terrorism insurance at a higher rate (79%) than did those in any other industry segment in 2015.
  • Education, hospitality and gaming, and health care organizations had the next highest take-up rates among the 17 industry segments surveyed, all at or above 70%.
  • Manufacturing, chemicals, and energy and mining were among the industry segments with the lowest take-up rates.

Compared with premium rates in 2014, median property terrorism insurance premiums decreased or stayed the same in 2015 for 11 of the 17 industry categories, the report said.

Related: The cartel connection: Linking insurance fraud, drug cartels and terrorism

The report also found regional differences in take-up rates. A higher percentage of companies in the Northeast (72%) purchased property terrorism insurance than in any other region, which the report attributes to the concentration of large metropolitan areas, including Washington, D.C., and New York City; the perception that major cities may be at a higher risk of a terrorist attack; population density; and that the region was the site of the 2001 terrorist attacks. The Midwest and South saw the lowest take-up rates in 2015, at 57% and 54%, respectively.

As the number of terror attacks hitting nongovernment targets, such as theaters and newspaper offices grows, employers are increasingly concerned about protecting their employees, and Workers’ Compensation insurance is a major component of that protection. Following TRIPRA’s reauthorization, the report found that pricing and availability generally reverted to levels seen before the uncertainty over whether the law would be extended. Large employee concentration exposures and the associated loss potential remain key factors in workers’ compensation underwriting and pricing for terrorism risk.

Marsh’s full report summarizes terrorism risk insurance trends, provides benchmarking related to terrorism insurance take-up rates and pricing, and offers risk management solutions for terrorism risks. To obtain a copy of the report, visit Marsh’s website (registration required).

Related: Top 10 Workers' Comp carriers, as ranked by NAIC

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