Insurance, War and Terrorism

Terrorism and military activity continues to be a major concern to us all; even affecting the, normally, mundane world of insurance. It would be natural for you to wonder about items such as:

  • How do the events affect my insurance protection?
  • Are war and terrorist acts the same?
  • Exactly what is excluded by my policies?
  • Do I have to buy special coverage to protect my belongings?

It is understandable to be concerned and confused over the above issues, especially since everyone is being inundated with news and advice.

Personal lines insurance (any coverage that protects personal rather than business property) is more standardized than commercial insurance. Because of this higher level of standardization, the coverage approaches used in policies for cars, homes, and personal liability are similar.

Most policies prohibit coverage for causes of loss that are considered "uninsurable." Not surprisingly, coverage for war is one cause of loss that is excluded. Typically, auto and homeowner policy wording not only excludes war, but any military actions similar to war such as rebellions, large-scale civil disturbances, and revolutions. Further, coverage is excluded regardless whether the government has formally declared a state of war. On the other hand, acts of terrorism are distinct from war and, as we have learned to our sorrow, involve individuals committing acts against other individuals rather than against governments or military personnel. At one time, losses caused by such acts were covered, but that was when their likelihood of occurring was rare.

Since the danger of terrorist acts has risen, more policies have begun to exclude this cause of loss. However, it is always in your best interest to look at exactly what is stated in your policies. It would also be helpful to contact an insurance professional to discuss any of your concerns in enough detail so that you understand your situation and your coverage needs.

TRIA was enacted in 2002. It made available a level of federally-backed reinsurance protection for losses caused by certified acts of terrorism. It did, and still does, apply for all commercial property and casualty lines of business. However, it excludes coverage for Workers Compensation.

Features of TRIA involve the following:

  • All applicants in eligible lines of insurance must be offered terrorism coverage when requested
  • Policyholders must be given an endorsement that explains what actions are covered and they must be advised of the coverage’s exact premium
  • Several types of coverage are excluded under TRIA such as Commercial Auto, Medical Malpractices, National Flood and surety insurance
  • In order for a loss event to be covered, it must be certified as terrorism (more on this below)

Consultation between the U.S. Treasury Secretary and the Department of Homeland Security determines whether an event receives terrorism certification. Consultation involves consideration five guidelines including that the purpose of the event involves violence and results in tangible damage to persons, property or infrastructure. Federal reinsurance coverage is not triggered unless and until the aggregate damage faced by the insurance sector reaches an amount that varies by year, up to the year 2020. In 2016, that amount is $140 million. Further, each insurer must, first, meet a predetermined terrorism act deductible that is based on each company’s premium writings.

The U.S. Government has a formula that allows it to, later, recoup its terrorism reinsurance payments, but the potential amount is capped, depending up the total amount that the private insurance market has paid for certified terrorism losses.

TRIA has been extended several times and the program is scheduled for termination in 2020. The federal government is, on an ongoing basis, collecting data that, it hopes, will be enough to give the private market enough confidence to provide its own reinsurance market.


COPYRIGHT: Insurance Publishing Plus, Inc. 2016

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