Ensure your clients are protected by knowing the differences between TRIPRA and Standalone coverage
One of the most frightening and unthinkable events that can happen on U.S. soil is a terror attack. Often, we find peace of mind by telling ourselves that a devastating attack can’t happen in the region or the city where we live. But heartbreaking events like the July 2015 Chattanooga, Tennessee, shootings; the 2013 Boston Marathon bombing; and the Oklahoma City bombing of 1995 remind us that tragedies and their resulting damage and financial losses can happen anywhere.
As the risk of terrorism grows, evolves and expands outside of our largest cities, the role of retail brokers and agents is becoming more critical. Brokers and agents have a responsibility to educate clients about the risks they face and ensure their property and businesses are protected regardless of their geography.
Financial Recovery after a Terror Attack
The financial impacts of a terror attack on individual insureds are often overlooked as we focus on the impacts to cities, infrastructure and national security — but they are critical. Patrick Browne, Underwriter, Global Excess Partners specializes in Standalone Terrorism coverages and says, “regardless of an attack’s location and scale, a Standalone terrorism insurance policy is the best way to ensure your clients can recover financially. Insureds who do not protect their property or business operations with this type of insurance policy leave themselves open to potentially debilitating costs of property damage and business interruption.”
In the U.S., a federally subsidized insurance program called TRIPRA (Terrorism Risk Insurance Program Reauthorization Act) was put in place following the September 11, 2001, attacks (originally called TRIA and subsequently extended). Through a complex system of shared public and private compensation, TRIPRA provides coverage for a limited number of insured losses resulting from an act of terror.
In addition to TRIPRA, insureds have the option to purchase a Standalone Terrorism policy through the private market.
According to Browne, brokers and agents often do not present their clients with options for Standalone Terrorism coverage because they believe its cost prohibitive. “Following the September 11, 2001 attacks, Standalone Terrorism coverage was very costly,” says Browne. “Over the last 14 years, the marketplace has adapted and changed significantly, and coverage has become much more affordable. We are beginning to see more properties with high concentrations of people – apartment buildings, shopping malls, etc. – exploring options for coverage.”
TRIPRA vs. Standalone Coverage
Discerning the differences and benefits of Federal Terrorism coverage versus Standalone coverage can be difficult to navigate. According to Browne, there are six key differentiators to consider between TRIPRA and Standalone coverage:
Perhaps the most important thing to note about the federal TRIPRA program is that it requires the U.S. federal government to officially and publically declare an event as an act of terrorism before it can be activated. Because the government isn’t quick to classify events as terrorism, insureds can be left with uncertainty about their coverage.
Tim Davies, War and Terrorism Underwriter at global specialist (re)insurer Canopius Group, explains, “Rather than relying on a clear insurance contract with a private insurer, the insured is reliant on the government’s action, which could be unpredictable and sluggish.”
According to Davies, a Standalone Terrorism policy can provide insureds with more clarity. “Typically, a standalone policy will clearly outline the types of perils covered by the policy,” said Davies.
2. Trigger Point
Davies also points out that TRIPRA will not cover losses from a classified terror attack unless the event causes more than $5 million worth of damages. “When it comes to smaller scale events in smaller cities, insureds may find that their TRIPRA coverage will not be activated, as the costs of the attack may be lower. But those lower costs can still be detrimental to the insured. A Standalone Terrorism policy does not have a trigger point; rather the policy is triggered when a claim is filed,” says Davies.
When an insured files a claim with a private insurance company, they have recourse if the insurer denies their claim. They can file an appeal and even take the insurer to court. If an insured finds themselves in a situation where TRIPRA has not been triggered – either by an official classification from the federal government or because damages have not reached the trigger point – they have no recourse against the government. “The details of TRIPRA are law, so insureds have very few options to dispute them,” says Davies.
Standalone Terrorism coverage provides protection for the property damages that can result from a terror attack, but it can also cover losses from business interruption. “For most insureds, they can’t restart operations after being shut down for an extended period of time, which is unfortunately what tends to happen following a terror attack,” Browne says. “In addition, they may have trouble regaining some of their original traffic, as their customers may be fearful following the attack. There are many ways a terror attack can impact an insured, and coverages are available in the private market to help protect them.”
5. Speed of Loss Recovery
As Davies says, “the wheels of bureaucracy turn slowly.” If TRIPRA is triggered, it’s difficult to know when claims will be processed and paid out. Because a Standalone Terrorism policy is automatically triggered following the filing of a claim, the process of loss recovery begins quickly. Plus, Browne notes, the insured can access updates on the status of their claim throughout the process by working closely with their broker or agent.
Unlike TRIPRA, Standalone Terrorism coverage offers flexibility. With a standalone policy, you can choose which locations to cover based on a risk analysis. For example, Browne notes that a franchise owner may not feel that each of his locations is at high risk for a terror attack. But, one of the locations may be next door to a high-traffic bank, or across the street from a government building. A standalone policy can be written for specific and individual locations, or for a full property portfolio.
“The key takeaway is it’s important to educate your clients about what type of policy best suits their individual needs,” says Browne. “The uncertainty when working with the federal government during the aftermath of a terrorist attack remains high. With a standalone policy, insureds can feel more secure that their losses will be covered.”