If you own a commercial building in America, chances are you're going to take out terrorism insurance. It has moved into the mainstream with the depressing frequency of international incidents. Six in 10 major businesses in America are insured for terrorism damage, according to the Insurance Information Institute, although the coverage is rarely used.
As it happens, the Inland Regional Center in San Bernardino, Calif., where a terrorist couple killed 14 people earlier this month, is covered by terrorism insurance.
"These things happen; they happen fairly routinely around the country," says Bill Lemann, a lawyer who represents the California Housing Foundation, which owns the property. "And so I suppose it's not unlike buying extra life insurance for your family. How are you going to sustain them if the unthinkable happens?"
When the unthinkable happens and an act of terrorism gets wide media coverage, the phones at Marsh start to ring. Marsh is one of the world's largest insurance brokers. Tarique Nageer, head of the terrorism unit at Marsh USA in New York, says his company sees a 10 percent jump in activity after a terrorist attack.
"Since the Boston Marathon a couple of years ago, we've had an uptick in clients who are very cognizant of soft targets being potentially hit by terrorism events," Nageer says. "And obviously San Bernardino [and] Paris as well have raised the knowledge factor amongst clients, and they've been asking questions as to, 'Do we have the [coverage]?' "
England has had terrorism insurance for years because of IRA bombings, but it's a relatively new type of risk coverage for this country. President George W. Bush signed into law the Terrorism Risk Insurance Act in 2002, the year after the terrorist attacks on Sept. 11.
The act created a public-private loss program for panicky businesses fearing more terrorist strikes. Total insured property losses from the attacks on the World Trade Center and the Pentagon exceeded $24 billion.
In the ensuing 14 years, though, there has not been another major attack as many had feared. And because there haven't been any big claims, terrorism insurance rates remain fairly low for clients and fairly profitable for big companies like Lloyd's of London.
Nageer says risk is calculated based on a structure's perceived "target value." "And obviously, if you're next to what's called a 'trophy property,' some sort of high-profile building, that'll raise your cost of insurance," Nageer says.
The federal terrorism insurance program has been around for 13 years, but it's never been used. Under terms of the program, damages from an attack must reach $5 million. Once adjusters have determined the destruction has hit the $5 million threshold, no less than the Treasury secretary must then certify that it's eligible for federal risk coverage.
"It doesn't matter if the president says it's a terrorist attack. It has to be certified by the U.S. Treasury," says Bob Hartwig, president of the Insurance Information Institute.
As it turned out, insured damages caused by the Boston Marathon bombing, as defined under the program, did not surpass $5 million — though three people died and 264 were injured. Standard insurance policies covered all property, casualty, health and workers' compensation claims.
While the human toll at the Inland Regional Center in San Bernardino was appalling, when adjusters enter the building, they may also find that damages amount to less than $5 million.
What this means — in cold arithmetic — is that if terrorists continue hitting soft targets, the federal terrorism insurance program may have few takers.