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Noncertified terrorism insurance considerations for US companies

Noncertified terrorism insurance can help prevent potential gaps of coverage, providing protection for events not meeting the requirements for coverage under TRIA.

In December 2019, the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) was authorized through December 31, 2027. TRIPRA’s authorization included the removal of the requirement that a terrorism act be committed only by an individual or individuals acting on behalf of any foreign person or foreign interest. TRIPRA also includes acts of “domestic terrorism” within the original Terrorism Risk Insurance Act of 2002 (TRIA) certification. As a result, many brokers and clients have questioned the need for noncertified terrorism coverage going forward.

Noncertified terrorism insurance can help prevent potential gaps of coverage; it provides protection for events causing less than the $5 million aggregate loss required under the original TRIA legislation. While these are the main characteristics of this type of coverage, they are not the only elements.

A certified act of terrorism is defined by TRIPRA as:

“Any act that is certified by the Secretary of the Treasury — in concurrence with the Secretary of Homeland Security, and the Attorney General of the United States — to be an act of terrorism; to be a violent act or an act that is dangerous to human life, property, or infrastructure; to have resulted in damage within the United States, or outside the United States in the case of certain air carriers or vessels or the premises of a United States mission.”

In addition to the above political requirement, TRIPRA’s definition of a certified act of terrorism also requires;

“...[the event] to 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 the policy or affect the conduct of the United States Government by coercion.”

This last section is also important when considering acts of terrorism that may not be certified in the future.

Insurers have attached their TRIPRA endorsements in the majority of cases where clients have decided to purchase TRIPRA coverage under their “all risk” property policies. Coverage will be provided per policy conditions when an act of terrorism is certified.

In some instances, no terrorism exclusion endorsements have been added by the insurers. Therefore, loss for acts of terrorism that have been certified per TRIPRA’s requirements — as well as acts that are not certified — may be insured subject to the policy’s terms. It is expected that noncertified terrorism events resulting in fire and explosion damage (and other losses) will be covered depending on the scope of coverage in the “all risk” property policy.

In certain cases, however, property insurers are attaching exclusionary wording for events that fall outside of TRIPRA (for example, noncertified terrorism and events under the $5 million TRIPRA certification trigger). In particular, this approach is taken by the following types of programs:

  • TRIPRA Captive Programs — Clients use captives to insure certified TRIPRA terrorism. Property insurers then sometimes attach absolute terrorism exclusions to their “all risk” property contracts.
  • Fronted Property Programs — A panel of reinsurers behind the front attach an absolute terrorism exclusion to any reinsurance agreements for the US/global “all risk” property policy including TRIPRA.

Instances where exclusionary language is being attached are not limited to the above cases, and it is critical to review such exclusions when they have been attached to policies.

The exclusionary wordings being attached are often the Lloyd’s endorsements NMA 2918/2919, which exclude a broader definition of terrorism than is contained within TRIPRA.

The wording, in part, contained under these endorsements is as follows:

“An act of terrorism means an act, including but not limited to the use of force or violence and/or the threat thereof,of any person or group(s) of persons, whether acting alone or on behalf of or in connection with any organization(s) or government(s), committed for political, religious, ideological or similar purposes including the intention to influence any government and/or to put the public, or any section of the public in fear.”

The application of this type of exclusionary wording can result in the following types of terrorist events or acts being excluded:

  • Events that are not intended to coerce the civilian population, to influence the policy, or affect the conduct of the US government by coercion (for example, animal rights attacks and/or where an individual or corporation is the target and not the public).
  • Events that take place outside of large civilian centers, and again where a very limited section of the public may be the target — such as a group of employees, and not the civilian population in general.

Under the above scenarios, it is important review any additional exclusionary language present on policies, and examine the technical gap in terrorism coverage. Insureds should then consider:

  • Seeking standalone noncertified terrorism coverage to transfer the additional risk, which will result in additional premium cost.
  • Retaining this additional risk.
  • Requesting that their property broker instruct insurers to remove such exclusionary language, if present (additional premium may result).
  • Replacing capacity/insurers that include such exclusionary language.

Please contact your local Marsh representative or a member of the Property Specialized Risk Group with questions regarding noncertified terrorism insurance.