22 Jul Insurance Talk — Terrorism Risk Insurance Act and Commercial Property
Rex and Cheri have the answers. Listen here.
Insurance Talk — Terrorism Risk Insurance Act and Commercial Property
Cheri Martinen – Good afternoon, you’re listening to Insurance Talk with Cheri Martinen and Rex Lesueur from Bancorp Insurance located in beautiful downtown La Pine, Oregon. We are coming to you with some fun insurance facts today, ripped from the headlines.
We’ve been getting a lot of calls about how our customers are covered for riots and civil commotion. And what is that terrorism form that I’ve declined year after year? And does that mean I’m not covered for riots and civil commotion?
Insurance Coverage for Riots
Rex Lesueur – That’s an interesting question, and it’s probably smart for people to ask because it’s complicated. After 9/11, the government decided that there needed to be some clarification as to whether or not major acts of terrorism are covered by insurance. A lot of insurance companies, after this happened, paid a lot of money for claims, and they didn’t think they had to but they paid it anyway. And there were lawsuits and all kinds of trouble going on.
It took years and years for all the money to get paid out to the owners of the World Trade Center and so on. So they set up this terrorism coverage. So what is terrorism and what is covered? What is this coverage that they created after 9/11 and was it not covered before? One of the perils in your insurance policy is riot and civil commotion.
Typically, a riot is going to be covered. You have what’s going on in the cities right now, in some of the major cities. And there have even been protests in smaller cities, although there haven’t been any major riots in smaller cities, mostly it’s just protesting. Anything that gets damaged, burned, etc., is typically going to be covered by a standard property insurance policy.
CM – What I think is interesting about this, and we touched on this a little bit when we talked about COVID-19 and not being covered for that, is that this is physical damage to your property. People are breaking windows, or maybe there is a fire, which is a covered claim, or looting, or maybe it’s just graffiti.
Insurance and Acts of Terrorism
RL – Vandalism and malicious mischief. Those are typical things that happen during a riot and/or a protest, and those are covered except when it becomes an act of terrorism. What does it take to become an act of terrorism? The good folks in that big white building in Washington, they’re the people who are going to tell us whether or not it’s going to be an act of terrorism. If Congress feels it’s an act of terrorism, they will declare it an act of terrorism. And then the insurance that is provided by the terrorism coverage that you may or may not buy with your business will kick in. This is limited coverage.
The government actually is going to pay 80% of the bill for any act of terrorism up to $100 billion. After that, everybody’s kind of on their own. So if it rises above an act of protest, civil commotion, or vandalism, and it becomes declared as an act of terrorism by Congress, then this $100 billion aggregate limit is going to kick in. That’s going to be paid by the government to the insurance companies to reimburse what they paid out.
Should I Buy Terrorism Insurance?
CM – I know a lot of people, maybe in a small business, look at the extra premium because there is an extra premium that is associated with the terrorism form. Sometimes it’s $2, other times its hundreds more. It really just depends on what you’re being offered and if you’re interested in buying it. I know a lot of people are like, what is this? Should I even look at it?
RL – And we have people that will make a decision based on their location, what kind of business they run, etc. For instance, I would imagine people in an inner-city neighborhood are more likely to buy the coverage.
CM – If there was a terrorist attack, a lot of times people think of it as being in a larger city area to have a larger effect. You think of New York because of 9/11.
RL – No one’s going to set off a bomb in La Pine. Well someone might set off a bomb, but it’s probably not going to rise to an act of terrorism declared by the federal government. Let’s talk about what kind of terrorism it can be. This does not necessarily mean foreign terrorists, the ilk we had with 9/11 with foreigners coming in commandeering the planes and flying them into buildings.
An act of terrorism could be homegrown terrorism. These groups can have any kind of agenda. It doesn’t have to be left-wing, starting the communist revolution over again in America. It doesn’t have to be right-wing, we’re going to set up a fascist government and teach those commie liberals a thing or two. It could be a motorcycle gang that decides they don’t like somebody. They start terrorizing them and it ends up with a bomb explosion destroying a building, that could rise to the level of terrorism if Congress decides to declare it an act of terrorism.
CM – And then this additional coverage that you are offered would kick in.
RL – Otherwise it might not. So you have to be careful of what’s going on with that. Since they set up the act, I don’t believe they’ve actually used it. I don’t think anything has been declared an act of terrorism. That’s 19 years now, and we’ve been collecting premiums on this and I don’t believe a dime has been spent on it.
CM – What do you think about the property owners who might be looking at their insurance right now, for their property insurance for the riots and civil commotion or vandalism?
RL – I think that if you’re in an inner-city area and you’re in a space where something like that is more likely to happen, or you’re a business on a major road where protests tend to gather, I’d certainly make sure I had it.
CM – Just call your agent or even read the policy that was delivered.
RL – This is mostly commercial. As far as homeowners, I believe it’s automatically included at no additional charge. Or maybe it’s charged, but they’re not going to ask for you to sign a waiver. What we’re seeing more and more of is that a lot of companies are just building it into their rate or just absorbing it, because, with certain kinds of risks, the premium was so small. We’re talking about waiving a $3 charge on a commercial policy.
You’ve got a $3,000-$4,000 policy and the terrorism is $3. Most people say, yeah for three bucks I don’t have to go through the trouble of signing a piece of paper to save $3. But in order for me to get the renewal done, they’d have to sign that piece of paper. And what a lot of companies are doing is just absorbing it. You spend far more than $3 handling the paperwork than you could ever recover from getting the $3 into your pocket.
CM – I know I’ve heard this on the news and I was curious to hear what you had to say. I’ve heard some people saying that this might happen, a terrorism type piece of paper for infectious diseases. So maybe we’d have an additional terrorism form as well as an infectious disease form. They haven’t done anything yet, but I was reading some articles on it.
RL – And that’s just what we need, more paperwork. But infectious disease is something that would not typically be one insurable event. They’ve changed the policies to make sure it’s not over the last couple of years. If Congress decides that we need to make that coverage available for business income and other kinds of situations, we might get that. And the government’s going to have to put a whole lot more than $100 billion up because, in a $20 trillion economy, it would not be unheard of for something like a virus to shut it down and cost $10 trillion in the first year.
CM – I was actually just thinking about that when you said that number. And I thought that was probably a good number nineteen years ago. I wonder when was the last time they updated that?
RL – It’s $100 billion, it’s not a lot. In some cases they charge quite a bit for it.
Terrorism Coverage and Commercial Property Insurance
CM – If you have any questions about your terrorism coverage, or if you have questions about your commercial property or your property for your home or auto, you can always give Bancorp Insurance a call at 1-800-452-6826. You can visit us online at www.bancorpinsurance.com or you can keep listening to us here on our podcast. I hope you learned something new today. This is a question we are getting a lot of so we purposely took the time to come in and make sure everyone had a little bit more information on that property coverage and what that terrorism form is we make them sign. Thank you.