Terrorism Risk Insurance

In 2002, President George W. Bush signed the Terrorism Risk Insurance Act (TRIA) of 2003 into law.  TRIA created a federal program, administered by the Treasury Department, which facilitates a system of compensation for insured losses which result from an act of terrorism.

The law has been extended several times and it is now scheduled to sunset on December 31, 2014.

Essentially, In essence, what this law does is provide reinsurance coverage to insurance companies in the event of any event which is declared terrorism.

Prior to the attacks on 9/11, commercial insurers did not exclude acts of terrorism, nor did they charge for them but the estimated $40 billion loss triggered the realization that there was a need for such coverage.

The losses from those attacks were largely borne by reinsurers who were hit so hard that they left the terrorism market. Once there was no available reinsurance, primary insurers began excluding terrorism incidents, causing a vacuum in the industry, which Congress fixed by enacting TRIA.

The definition of an “act of terrorism,” for purposes of terrorism risk insurance, is “any act certified by the Secretary of Treasury…to be an act that is dangerous to human life, property, or infrastructure and to have resulted in damage within the U.S…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.”

Acts committed as part of the course of a war are not covered, nor are various specific types of attacks, such as nuclear or biological.

Terrorism insurance covers numerous lines of insurance, including business property, loss of rents, and directors and officers liability.

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Commercial Insurance 101

The success of any business depends on a vision, work ethic, and building a dream; commercial insurance makes sure that all the effort and money you have invested in your business is covered in case a natural or financial disaster strikes. Most businesses need to purchase at least the following four types of insurance:

Property Insurance covers you if the property you use in your business is lost or damaged by common perils such as fire or theft. Property insurance covers not just a building or structure, but also what insurers call business personal property, like furnishings.

Liability Insurance covers you in the event that someone claims your business caused them harm. Your liability insurance pays damages to third parties resulting from bodily injury or property damage for which your business is legally liable, up to the policy limits, as well as legal fees associated with the claim. It also covers any medical bills for any people injured by your business.

Commercial Vehicle Insurance provides coverage for autos owned by the business. This insurance pays any costs to third parties resulting from bodily injury or property damage for which your business or employees are found legally liable, up to the policy limits. Depending on what kind of coverage you buy, the insurance may pay to repair or replace your vehicle because of damage resulting from accidents, theft, flooding, and other events.

Workers Compensation Insurance or workers comp, as this coverage is commonly known, pays for medical care and replaces a portion of lost wages for an employee who is injured in the course of employment, regardless of who was at fault for the injury. It also helps protect the business from a lawsuit from the injured employee.

There is additional coverage to be considered in addition to the basics highlighted above, there are various other policies needed by some businesses, including the following:

Business Catastrophe Liability or Umbrella policies provide coverage over and above your other liability coverage limits. They are designed to protect against unusually high losses. For the typical business, the umbrella policy would provide protection over and above general liability and auto liability policies.

Professional Liability Insurance policies are designed to meet specific needs of individual businesses specialized for liability policies needed by some businesses. They include Errors and Omissions Insurance (E&O)/Professional Liability Insurance, Employment Practices Liability Insurance (EPLI) and Directors and Officers Liability Insurance (D&O).

Terrorism Insurance is offered to owners of commercial property as mandated by the Terrorism Risk Insurance Act, enacted by Congress in 2002. Insurance losses attributed to terrorist acts under these commercial policies are insured by private insurers and reinsured by the federal government.

Navigating the world of commercial insurance and determining your businesses’s needs can be tricky. Be sure that you engage a reliable insurance professional when the time comes to purchase or re-evaluate your commercial insurance policies.

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