How to Build an Insurance Program for Terrorism Risks

Terrorist and other mass violence attacks like the ones in Paris and Brussels can have a devastating effect on your people, operations, and assets. Many companies look to insurance — mainly property, terrorism, and political violence coverage — to help manage the financial impact of these risks, which can include property damage, and business interruption.

Terrorism Insurance or Political Violence Coverage?

Property terrorism insurance provides coverage for the physical damage and business interruption that can result from acts that are motivated by politics, religion, or ideology. Political violence insurance provides coverage related to war, civil war, rebellion, insurrection, coup d’état, and other civil disturbances.

Choosing which coverage — or combination of coverage — is best for your organization can be tricky. The line between what is considered “terrorism” and what is considered “political violence” is often blurry. For example, should attacks by particular groups be classified as acts of terrorism, or another form of political violence?

To help determine the best insurance program to manage these risks, here are a few things to think about:

• Ensure the limits of insurance that you buy provide enough protection for multiple loss scenarios.
• Review the location of your assets to determine the appropriate insurance solution.
• Understand the policy terms, conditions, and limitations of terrorism and political violence insurance.
• Work with your advisors to understand your property and employee exposures so you can make an informed decision or mitigate potential losses.

To ensure that your insurance purchases are carefully coordinated and will protect you in the event your company is affected by terrorism or political violence, talk to your advisors.

Addressing the Risks

Along with insurance considerations, of course, you need to ensure the safety of your employees with integrated and well-practiced crisis and continuity plans in the event of a disaster. Events from terrorist attacks to natural catastrophes can cause significant business interruption (BI) losses.  Steps to take to manage BI risk include:

• Develop and test business continuity plans.
• Conduct scenario testing.
• Coordinate BI insurance with other coverages, including political violence and terrorism insurance.
• Be prepared to gather appropriate information in the event of a claim, including recording damage via photographs and video.
• Maintain separate accounting codes to identify all costs associated with the potential damage.

For more information on these topics, read Marsh’s 2015 Terrorism Risk Insurance Report.