2020 brought a lot of challenges to us all. Many businesses were affected in some way shape or form. We saw many pawnbroker’s retail sales go thru the roof. This was met with lower loan portfolios but many pawnbrokers that were able to get inventory were able to take advantage of a brisk retail sales environment created by 2020. Just like the pawn industry had challenges so did the insurance industry. 2020 not only saw COVID change the way we all do business, but we also saw another active storm season in the gulf, fires out west, in June the pawn industry was affected by rioting, and in the fall we saw a very heated election.
All of this caused many of you to reach out to your insurance carriers to ask questions about coverage and to review your coverage limits. One of the most common questions we received was regarding terrorism insurance. Do I need it? What does it cover? Do I need terrorism insurance to be covered if my store was looted? This article will set out to try and explain briefly the aspects to terrorism insurance and what it is and what it covers.
What is Terrorism Insurance?
Terrorism insurance is a type of insurance that property owners purchase to cover the potential losses and liabilities that may occur as a result of terrorist activities. Terrorism insurance is provided by a public-private risk-sharing partnership that gives the government and the insurers the responsibility of sharing the losses that result from a terrorist attack. The coverage is offered as a special add-on feature or endorsement to commercial property insurance.
In the wake of the terrorist attack of September 11, 2001, Congress implemented the Terrorism Risk Insurance Act (TRIA) in 2002 to fill a critical and financial void at a time of great national uncertainty. Because of the nature and scale of 9/11, terrorism coverage became difficult to find and insurers priced it as separate coverage. Now, as a result of TRIA, all U.S. insurance companies that offer property and casualty coverage are required to offer terrorism insurance. The federal government shares the financial responsibility for insured losses with private insurers in the event of a terrorist attack.
What Does Terrorism insurance cover?
A commercial terrorism policy covers damaged equipment, furnishings, and buildings. The policy may also cover other losses associated with terror attacks, such as monetary losses that result from business interruption. In addition, the policy may cover liability claims against a business after a terrorist attack.
What Does Terrorism Insurance Exclude?
In some states, fire damage is excluded from coverage. Biological, nuclear, radiological, and chemical attacks are also typically excluded. Terrorism insurance does not typically cover incidents that involve online attacks, where computer networks and data breaches are involved. Cyber liability insurance comes into play in these scenarios, and it will cover the cost of recovering from and addressing a data breach.
How Terrorism Insurance Works
If the U.S. Department of Treasury classifies an event as a terrorist attack, the ensuing losses are covered if the act causes at least $5 million in insured losses. Coverage will not be triggered without this official declaration. The U.S. Department of Treasure will classify an event as a terrorist attack if the act is violent and the actors had the intent to coerce government officials or civilians. In addition, the aggregate insured losses from certified acts of terrorism must also be at least $100 million in a year for coverage to be triggered.
Do I need terrorism insurance to cover rioting, looting, vandalism, civil commotion?
No, you do not need terrorism insurance in the event your store is looted or vandalized. Back in June Marshall & Sterling had over 50 clients whose stores were affected by the riots. Our insurers paid out well above 5 million dollars in claims resulting from these unfortunate events. Under a normal business insurance policy rioting is covered. A little-known fact is that since the terrorism risk insurance act was created there has not been one act of violence in the US that has been declared an act of terrorism nor met the above criteria for that act to be triggered. Pawnbrokers should take into consideration their locations, the price of the coverage and what is actually covered to understand whether or not terrorism should be included in their policy.
With 2020 behind us we all hope that we can get back to some level of normalcy and spend more time with our friends and family. As with all insurance, it is important to have a strong relationship with your agent who can help advise you on the different types of coverage available to you. Now more than ever all pawnbrokers should be dusting off their policies and picking up the phone to call their agents, so they know what is and what isn’t covered.