Archive for June, 2013

Securing peace of mind in all circumstances

In recent weeks, we’ve seen a couple different articles about a very important, but little thought of area — terrorism insurance.

Terrorism-MapOne piece of news was released by, Aon Risk Solutions (ARS), a London-based company. ARS unveiled its 10th annual Terrorism and Political Violence Map. What we found interesting about the map is that it is designed to help companies around the globe, who are researching opportunities for international expansion, assess risk levels of political violence and terrorism.

According to ARS, for 2013, 44 percent of countries measured for the map have an “identifiable risk of terrorist attack,” meaning that, some level of violence is likely to take place. Although the United States was not listed as a country at high risk, the recent bombing during the Boston Marathon is a solemn reminder that we are not immune.

A little closer to home, Business Insurance reported that a third bill to extend the federal terrorism insurance backstop has been introduced in Congress, the latest by Reps. Michael Capuano, D-Mass., and Peter King R-N.Y., that would extend the program for 10 years.*

If you haven’t read either article, here are a few key quotes to give perspective: 

“Terrorism is having an increasing impact on today’s global organizations, and terrorist attacks are now regarded as a foreseeable risk. An attack not only on, but near an organization’s premises can result in human casualties, property damage, business interruption, legal liability issues and long-term damage to brand and reputation.”

—Neil Henderson, head of the Aon Risk Solutions’ Crisis Management Terrorism team.

“Having a plan in place before a terrorist attack occurs ensures that we can respond quickly to citizens and businesses in need, while maintaining economic stability.”

—Nat Wienecke, senior vice president, federal government relations for the Property Casualty Insurers Association of America.

Leigh Ann Pusey, president and CEO of the American Insurance Association said extending TRIA is especially crucial in the aftermath of the bombings in Boston. “The terrorism risk insurance program continues to protect our nation’s economy. In the years since September 11, 2001, the program has provided much-needed market stability and predictability for an orderly recovery after an event,” she said.

ARS also contends “growing awareness is needed for businesses (about terrorism)…” And, at UIG, we agree.

Now that the dust has started to settle a little after the horrific events in Boston, it’s important to keep terrorism awareness going. This is not a tactic to play on people’s fears, but more to educate and help business owners prepare for a possible event that is unfortunately becoming more common. What we need to remember is that anytime there is a violent act of this nature, besides the incredible human toll, there’s a business toll too.

Odds are pretty good that your clients know very little about terrorism coverage.

For instance, acts of terror are typically excluded from commercial insurance policies. Before 9/11, insurance companies, in general, provided terrorism coverage to commercial customers for free or little charge. However, in Nov. 2002, Congress enacted the Terrorism Risk Insurance Act, which outlined insurance coverage for terrorist acts. In the years since, insurers have begun to assess the risk of terror, which is largely affected by location.

It’s important to make sure your clients understand that terrorism coverage is generally available as a rider for an additional premium. They have to request it to receive it.

As businesses decide which coverages are most important, your counsel will be key as they work to balance how the added costs will impact their bottom line now, while a potential exposure may or may not affect them later.

If you’re trying to decide what may be the key points for you client to know about terrorism coverage, here are some facts to consider:

  • Payouts are not guaranteed. “Companies could lose insurance payouts for property, lost income and other damage if a bombing is officially declared an act of terrorism by key U.S. officials.” Wall Street Journal

Today, no terrorism insurance rider prior to the event equals no payout.

  • You don’t have to be at the scene of the attack to be impacted. Business interruption can take on many forms. For example, in Boston, the area around the crime scene remained largely closed for eight days.

Now, also consider all of the businesses just outside of the crime scene, that were affected when police essentially locked down the city of Boston as they searched for suspects. How many small businesses suffered losses that day? What percentage of the loss might be defined as business-interruption? What percentage terrorism, if any? And how many of those small businesses dismissed the notion of buying terrorism insurance before terrorism came to their front door? 

Businesses directly in the line of fire are still working through the recovery process.

  • There is a difference between terrorism insurance and business interruption insurance. Business-interruption insurance covers things like wages and ongoing expenses that a business can’t pay when it’s forced to close or relocate as a result of a covered cause, such as fire, flood, chemical spill, etc. — circumstances not labeled as an act of terrorism. Terrorism insurance covers property damage or business losses associated with terrorist acts.
  • Cost can be a prohibiting factor for smaller businesses. 60 percent of U.S. businesses have terrorism insurance, according to the Congressional Research Service. Premiums can be as low as $25 a year, but larger businesses in high-risk areas can pay thousands. While large businesses tend to be the biggest buyers of terrorism insurance, small business owners are not following suit.

Through it all, it’s important to remember that acts of terror can occur anywhere, for any reason. It is a worthwhile exercise for business owners to reflect on how they would manage their businesses (and personal lives) in the midst of a major emergency. To think through all of the possible impacts of a disaster and the steps — insurance being only one — that might be taken to mitigate risk.

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