Terrorism insuranceBoston bombing spurred small, midsize businesses to buy terrorism insurance

Published 23 April 2014

After the 2013 Boston Marathon bombing, terrorism insurance, designed for large businesses, became a necessary business expense for many midsize and small firms. Some 160 companies near the Boston explosion submitted insurance claims for property damage or business losses and only 14 percent had coverage for terrorism. “The Marathon attack changed the calculus,” an insurance industry insider says. “It taught us terrorism is a risk to businesses of every scale and size.”

After the 2013 Boston Marathon bombing, terrorism insurance, designed for large businesses, became a necessary business expense for many midsize and small firms. Broken windows and forced closure at restaurants and local businesses near the finish line led businesses across the country to think, “hey, this could happen to me,” said Philip Edmundson, co-founder of William Gallagher Associates, a Boston national brokerage firm. Some 160 companies near the Boston explosion submitted insurance claims for property damage or business losses and only 14 percent had coverage for terrorism.

The SFGate reports that 80 percent of Edmundson’s 5,000 small and midsize customers have since purchased terrorism insurance, compared to 50 percent before the 2013 bombing. Edmundson attributes the increase in terrorism insurance to the Boston bombing. “The Marathon attack changed the calculus,” Edmundson said. “It taught us terrorism is a risk to businesses of every scale and size.”

Before the 9/11 attacks, terrorism insurance was generally covered in policies without additional charges since the possibility of an attack seemed unlikely. Insurance companies paid an estimated $31.6 billion after the 9/11 attacks, and providers began excluding terrorism insurance from commercial policies. Companies which offered terrorism insurance charged a premium, according to a March 2014 report by the Congressional Research Service.

Marsh & McLennan notes that the average cost for property terrorism coverage ranges from $19 to $49 per million of insured value, depending on the size of the company. The expense typically represents 3 to 5 percent of a company’s property insurance bill.

In 2002, Congress passed the Terrorism Risk Insurance Act, and reauthorized it in 2005 and 2007, to serve as a backstop for insurers after a major terrorist attack. The Senate this month agreed to renew the act, which expires this December, seven more years. A House subcommittee is expected to submit its own version later in May. Under the terrorism risk act, insurers cover losses up to $100 million for a single attack and the U.S. government will cover amounts after that threshold is met and individual companies pay a deductible of 20 percent of the previous year’s commercial insurance premiums. The federal annual liability is limited to $100 billions and the government is required to recover as much as $27.5 billion in losses through a surcharge on commercial policies. Robert Hartwig, president of the Insurance Information Institute, believes that the act counters a key goal of terrorists, which is to disrupt commerce. “There’s no question the program is clearly part of the national economic security of the country,” he said. “What the terrorists want to do is debilitate the U.S. economy.”

SFGate notes that many businesses in Boston which purchased terrorism coverage before the bombing did not need the coverage, since the Treasury Department never officially labeled the attack an act of terrorism. Under the Terrorism Risk Insurance Act, an incident is considered an act of terror for insurance purposes only if it causes at least $5 million in total covered losses.