Lessons from Terrorism Insurance

“Well, it couldn’t happen here” was getting a pretty good foothold in this area.  We were beginning to forget about the apprehension of Ahmed Ressam by U.S. Customs officials in Port Angeles, Washington in 1999, and it was pretty much quiet as several potential incidents were thwarted by the FBI.  Then, along comes an incident like the Boston Marathon bombing to remind you that terrorism can happen anywhere. 

Past the human tragedy of terror, there is an economic aftermath that emanates from the incident like ripples on a pond.  Most immediately, the victims need care.  The dead are buried and the injured are treated.  In the case of the Boston Marathon bombing, many of the injuries are not only severe, but they will change the lives of the injured.  Amputations require immediate care, rehabilitation and then ongoing attention.  While we know already that several victims did not have insurance, informed sources are speculating that the care costs for those that do have insurance may exceed their coverage limits.

The business implications ripple out from there.  On the short term, businesses in the area of the bombing may have damage that needs to be addressed immediately and business interruption implications that can last longer.  In Boston, for example, the area around the crime scene has remained largely closed for eight days following the incident and the implications for the area have yet to be determined – will people gravitate to the area out of interest or avoid it out of concern for the associations.  There are estimates as many as 70% of businesses in urban areas may have terrorism insurance; those who do may be able to weather the interruption more easily.

After 9/11 –at over $32 billion the largest payout in the history of insurance until Hurricane Katrina in 2005 – the US enacted the Terrorism Risk Insurance Act which made the federal government an insurer of last resort in terrorism incidents.

Going forward, it hardly seems likely that lots of businesses in Port Townsend, Sequim and Port Angeles will be rushing out to buy terrorism insurance – at Homer Smith Insurance we don’t get many calls from people inquiring about it.  Even in our closest brush with terrorism to date, it appears the terrorist was just passing through on the way to larger targets far from here.

Nevertheless it is both true that terror incidents can occur anywhere and that these incidents give us an opportunity to reflect on how we would manage our own homes, lives and businesses in the midst of a major emergency.  There is plenty of overlap from a claims and business interruption perspective to make an event like the Patriot’s Day bombing a worthwhile opportunity for business owners or managers to spend some time reflecting on the impact of a disaster on their business and the steps – insurance being only one – that might be taken to mitigate the impact of disaster on their business and their lives.

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