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Terrorism: A Very Broad Exposure

Posted by Jessica and Joey on June 28, 2016 at 9:29 AM

With tragedies striking almost daily, it is important to think about how your community would respond. Who would help you manage a major disaster? How could something of that magnitude affect your entity’s bottom line? What insurance policies, protocols, and plans will you need to respond effectively? For risk management professionals, these are pertinent questions on how their public entity would react in the event of a crisis.

As insurance professionals, we often receive questions about how our clients' policies would respond in the event of a terroristic attack. Insureds may think that if a policy references ‘terrorism’ it means that any type of terrorist event would be covered, but that is seldom the case. The Terrorism Risk Insurance Act (TRIA) coverage is very specific; however there are policies available that provide broader coverage. For example, Lloyd’s of London offers such policies that do not rely on the Federal Government certification process. If there is a religious, political, or ideological motivation behind it, standalone terrorism policies will cover the financial impact of the attack. However, if the motive for the attack is unclear such as the theater shooting in Lafayette, LA, then a standalone policy may not provide enough coverage. Fortunately, there are policies that will respond and we recommend that you ask your broker or agent for specific options.

More often than not, an emergency situation arises outside of an entity’s owned locations. Whether the tragedy happens at a shopping mall, a movie theater, or even a local restaurant, the municipality and/or county must be involved when it comes to crisis response. This can lead to lots of unbudgeted overtime and internal resources. Generally, the financial impact is not covered by your insurance policies as your owned buildings are not directly impacted. We know that previous terrorist attacks have cost public entities many millions of dollars in loss of tax revenue and expenses – and they did not even occur at the entity’s owned buildings.

The financial impact of these attacks can be extensive, but often the most neglected part in major catastrophes is the human element. Who is going to take care of the families of the victims, the traumatized employees and first responders, the surviving victims themselves? When the media is swarming and the public information requests are coming in by the hundreds, it can be difficult at best to stay on top of the situation especially when you still have your day job to do. Planning for such eventualities is crucial. Having additional resources to call upon when needed can help tremendously. We’ve seen it time and again: how you respond, how you treat the families, and how you handle the media can have long lasting consequences for your reputation as an entity.

The recent tragedy in Orlando serves as a harsh reminder that we are all vulnerable to acts of terror. With news from just about every major news source that ISIS is encouraging more attacks on the West, we as insurance and risk management professionals need to consider how we will respond to such events. Insurers and brokers have solutions to help manage the unthinkable.