Paris – Terrorism Risk Insurance Act Revisited

J. Darrin Gross Standard

Paris

Paris

Paris – Terrorism Risk Insurance Act Revisited; The terrorist attacks in Paris on the citizens of Paris by the cowardly terrorist reminds us of the importance of safety, at any cost.  

Similar to 9/11, when America was attacked and our safety was threatened, there were multiple changes to the way we live that now seem ordinary, and widely accepted in order to preserve the safety we all seek in the place we call home.

The new Transportation Security Administration, TSA, works to protect us when traveling by air.  In the name of safety, we agree to remove our shoes, subject ourselves to body scanning, luggage x-ray, and more.  While this is inconvenient compared to traveling prior to 9/11, the results speak for themselves; no new attacks on US soil.

Terrorism Risk Insurance Act

Another not so well recognized act passed as a result of 9/11 was the Terrorism Risk Insurance Act (TRIA).  This was a reaction to a new risk the insurance industry had no way to adequately reserve for or predict the impact of the risk.

If you are in the insurance industry, or you are responsible for purchasing insurance for your company, you remember, that when 9/11 happened, there were some dramatic changes in insurance that lead to the creation of TRIA.

  • President George W Bush declared that the US was at War.  This is important to note, because while insurance policies did not contain a Terrorism Exclusion, every policy written contains a “WAR EXCLUSION”.  Any damage or claim caused by WAR is not covered.  
  • Insurance companies paid an estimated $35.6 billion in claims (Milken Institute) an amount only exceeded by Hurricane Katrina.
  • Reinsurance, insurance for insurance companies, failed in mass.   
  • Reinsurance markets made the decision to not offer Terrorism coverage in areas believed to be at a heightened risk for potential terrorist attack.
  • Without Terrorism coverage, the retail market was exposed, and carriers sought the ability to exclude terrorism through state insurance regulatory bodies.
  • The removal of capacity in the Reinsurance market resulted in a strain on the marketplace, retail rates increased a minimum of 10%, as the remaining reinsurance carriers recognized the opportunity for additional business and exposure.

The insurance marketplace was facing the possibility of unlimited loss, with no way to accurately prepare for a potentially unlimited loss.

In light of this new risk, Congress passed the Terrorism Risk Insurance Act, which provides:

  • Every carrier MUST offer Terrorism coverage.
  • The act provides that payment for claims exceeding $100 Million direct to insurance companies, will be made by the US Government.
  • Insureds have the option to REJECT Terrorism, on all policies except for Workers Compensation.
  • Failure to purchase Terrorism Coverage will result in a rejected terrorist claim.

Summary:

Since 9/11, there have been no Terrorist attacks on American soil.  This is great news.  However, the Paris attacks demonstrate the wide disbursement & ease in which radical terrorist can strike instantly.  These terrorist are willing to risk their own life to kill citizens and destroy property.  

Insurance buyers must re-evaluate, their willingness to Reject TRIA coverage for minimal annual savings.  The risk is real and worth more than automatically rejecting the notion it could never happen here.

About the Author

J. Darrin Gross

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J. Darrin Gross is known to his clients & prospects as the most trusted insurance adviser for commercial real estate insurance. He is famous for helping apartment building and commercial property owners get high quality comprehensive protection at unbeatable rates. Download a free copy of the Real Estate Investors Guide to Commercial Insurance.