How to Evaluate Terrorism Insurance

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By eHow Contributing Writer

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(3 Ratings)

Terrorism insurance is a product that can be purchased to cover property damages and losses that are the result of a terrorist attack. Risk managers considering terrorism insurance should review the following steps that can help one understand the risks and limitations of terrorism insurance before purchasing.

Difficulty: Moderately Easy

Instructions

Step 1

Realize that terrorism insurance is a relatively new product offering. Government standards for terrorism insurance are vague, and risk calculations are difficult to predict.
Step 2

Know that the number of insurance companies offering terrorism insurance is low.
Step 3

Recognize that insurance carriers have a difficult time modeling the risk of terrorist attacks while the potential liability of any single terrorist attack is enormous. This makes pricing difficult for insurance companies and makes them selective in who they underwrite.
Step 4

Consider that certain industries, such as airlines, inherently carry more risk of terrorism than others. Risk managers should evaluate this risk when considering the need for terrorism insurance.
Step 5

Understand that one of the most effective ways to minimize loss in a terrorist attack is to have a crisis management plan. Each dollar spent on a crisis management plan can result in exponential savings in losses when a terrorist attack occurs.

Tips & Warnings

Read a terrorism insurance policy carefully before purchasing the policy. Many policies can contain verbiage that is overly restrictive. There are still many concerns over how insurance companies write certain conditions, wordings and clauses.
Most insurance companies now specifically exclude terrorist acts from coverage in property and casualty insurance.
Terrorism insurance offerings indicate a level risk acceptance by the insurance industry, but overall the trend is for the insurance industry to ensure that it does not have to accept as much liability for future terrorist attacks by better defining policies and terrorism related coverages in standard policies.