Does your business need terrorism insurance?

By Tina Irgang

The news was once again grim this week, with shocking images from Brussels broadcast around the world. It’s just the latest in a string of recent attacks in Paris, Istanbul, Beirut and elsewhere. For businesses worried their premises, assets or employees may be involved in a terror attack, does it make sense to buy insurance?

There is certainly a lot at stake. Leaving aside for a moment the awful human toll of terrorism, the economic toll includes countless factors, such as property damage, lost wages and medical expenses.

The 2015 Global Terrorism Index published by the Institute for Economics & Peace estimates that in 2014, the economic cost of terrorism worldwide reached its highest level ever, some $52.9 billion. While that number is still far below the impact of other violent crime, it doesn’t take into account many indirect costs of terrorism that are hard to measure. For example, the report doesn’t consider the costs of city lockdowns after a terror attack, increased levels of security and higher insurance premiums, its authors note.

Given the enormous potential impact if your infrastructure, premises or, worst of all, employees are targeted, many businesses already have taken the step of purchasing terrorism insurance. According to NPR’s Marketplace, it’s 60 percent of all U.S. businesses.

Generally, terrorism insurance “would cover damaged or destroyed vehicles, injured workers, or benefits for workers who were killed during a terrorist attack,” says Marketplace.

However, there is a hitch: For a terrorism policy to cover your losses, the federal government will have to certify an event as a terrorist act, says Insurance Journal. That threshold can be fairly high.

For example, the U.S. Treasury Department has determined that the Boston Marathon bombings in 2013 were not an act of terrorism under the relevant statute, The Terrorism Risk Insurance Act (TRIA) of 2002. To qualify under that law, an attack would need to cause more than $5 million in property damage, which is a threshold the bombings still hadn’t reached a year and a half later based on insurance claims, according to the Boston Globe.

On the other hand, events that are declared acts of terrorism “are excluded from most standard business insurance policies,” according to Insurance Journal. They would only be covered under specific terrorism insurance.

Things to consider before you buy

You should weigh the following three factors before deciding whether it makes sense to buy terrorism insurance, says the Insurance Information Institute (III):

  • Location: Obviously, your risk of being targeted is higher in an urban area, or if you’re near major infrastructure such as airports and train stations.
  • Cost: “Premiums for terrorism coverage range from $19 to $49 per million of insured value, depending on the size of the company,” says III. “The expense generally represents three to five percent of a company’s property insurance costs.”
  • Type of business: Certain industries are more at risk than others — for example, the energy sector.

Consider also that it may take a long time for terrorism-related claims to be approved. The Treasury Department does not currently have a deadline for making determinations about acts of terrorism. What’s more, the department has said that it “would be inappropriate and impractical” to impose such a deadline.

So while terrorism insurance may make sense if your company’s location or industry puts it at high risk, know that the policy’s benefits may be too little, too late.

Tina Irgang is the production editor for SmartCEO. Contact her at tina@smartceo.com.