Purpose of This Advisory
This advisory is designed to help you make an informed decision about whether to elect terrorism insurance coverage for your business. We understand that terrorism coverage represents an additional premium expense, and our goal is to provide you with the information necessary to evaluate this coverage in the context of your specific risk profile and business needs.
What Does Terrorism Coverage Include?
Terrorism insurance is available as an optional coverage endorsement across multiple policy types:
Property Insurance: Covers physical damage to buildings, equipment, inventory, and other property resulting from a certified act of terrorism.
General Liability Insurance: Covers third-party bodily injury and property damage claims arising from a certified terrorist act occurring at your premises or involving your operations.
Business Automobile Coverage: Covers damage to your vehicles and liability claims arising from a certified terrorist act involving your business vehicles.
The coverage generally mirrors the standard insuring agreements in each policy type but applies specifically to losses stemming from certified acts of terrorism.
How Terrorism Coverage Works: The Certification Requirement
Critical Point: For terrorism coverage to apply under most commercial policies, the event must be certified as an act of terrorism by the U.S. Secretary of the Treasury, in concurrence with the Secretary of Homeland Security and the Attorney General.
Certification Criteria
Under the Terrorism Risk Insurance Act (TRIA), a federal law that provides a backstop for insurance claims related to terrorism, an act must meet the following criteria to be certified:
The act must be a violent act or an act that is dangerous to human life, property, or infrastructure;
The act must have resulted in damage within the United States or to certain U.S. air carriers, vessels, or foreign missions;
The act must have been committed by an individual or individuals as part of an effort to coerce the civilian population of the United States or to influence U.S. government policy or conduct.
Without certification, the terrorism coverage endorsement typically does not respond to the loss, and the claim would be evaluated under standard policy terms and exclusions.
Important Considerations
Timing: Certification may not occur immediately after an event. The determination process can take time as authorities investigate.
Scope: Not all violent acts will be certified as terrorism. The act must meet specific legal criteria.
Foreign vs. Domestic: TRIA distinguishes between foreign and domestic terrorism for certain coverage applications.
Making Your Business Decision: Key Factors to Consider
When evaluating whether to purchase terrorism coverage, consider the following factors:
1. Geographic Location
Is your business located in or near a major metropolitan area, landmark, or critical infrastructure?
Are you in a downtown urban center or near government buildings, transportation hubs, or high-profile venues?
Higher-profile locations may face statistically higher risk.
2. Industry and Business Profile
Does your business operate in a high-visibility industry (hospitality, entertainment, transportation, energy)?
Do you host large public gatherings or events?
Are you part of critical infrastructure sectors?
3. Property Values and Business Interruption Exposure
What is the total value of property that could be damaged?
How long could your business operations be interrupted by property damage or restricted access to your location?
What would be the financial impact of a prolonged closure?
4. Contractual Requirements
Do your lease agreements, loan covenants, or contracts with other parties require terrorism coverage?
Many commercial landlords and lenders now mandate this coverage.
5. Total Insured Values
The higher your property values and liability limits, the more significant the potential loss from an uninsured terrorism event.
6. Cost-Benefit Analysis
Review the additional premium amount for terrorism coverage
Compare this cost to your total insured values and potential loss scenarios
Consider your organization's risk tolerance and financial ability to absorb an uninsured loss
7. Business Continuity Planning
How would an uninsured terrorism loss affect your ability to continue operations?
What is your access to capital for rebuilding or recovery?
Do you have adequate reserves or alternative financing?
Understanding the Probability Factor
The Reality: Certified terrorism events in the United States are statistically rare. However, the financial consequences of such an event can be catastrophic and potentially business-ending for organizations without adequate coverage.
Risk vs. Cost: Terrorism coverage typically represents a modest additional premium relative to your base insurance costs. For many businesses, this relatively small investment provides substantial financial protection against a low-probability but high-severity event.
The Insurance Principle: Like all insurance, terrorism coverage protects against events you hope will never occur but cannot afford to experience without financial protection.
Recommendations for Discussion
We recommend discussing the following with your management team or board:
Asset concentration: Where are your most valuable assets located geographically?
Risk tolerance: What level of uninsured risk is your organization comfortable retaining?
Stakeholder expectations: What do your shareholders, lenders, landlords, or board members expect regarding terrorism coverage?
Financial resilience: Could your organization financially recover from a significant uninsured terrorism loss?
Competitive context: What are similarly situated businesses in your industry doing regarding terrorism coverage?
Our Role as Your Insurance Broker
We are here to:
Provide you with accurate premium costs for terrorism coverage across all applicable policies
Answer questions about specific coverage terms and conditions
Help you evaluate your risk exposure based on your unique circumstances
Review any contractual requirements you may have
Assist with coverage comparisons and cost-benefit analysis
This is your decision to make, and we respect that you are best positioned to understand your business operations, risk tolerance, and financial priorities. Our role is to ensure you have the information needed to make that decision confidently.
Next Steps
Please review this advisory and consider the factors outlined above. We welcome the opportunity to discuss any questions you may have and to provide additional information specific to your situation.
To elect or decline terrorism coverage, please indicate your decision on the coverage election form provided with your insurance proposal.
Important Note: This advisory provides general information about terrorism insurance coverage and is not intended as legal or financial advice. Policy terms, conditions, and exclusions vary by insurance carrier. Please refer to your specific policy documents for complete coverage details. We recommend consulting with your legal and financial advisors as part of your decision-making process.
If you have questions about this advisory or would like to discuss terrorism coverage in greater detail, please contact our office.