“Going bare” may make you think of summertime skinny-dipping, but unfortunately, it’s not nearly that much fun. In the world of risk management, “going bare” means forgoing insurance, and these days, the dearth of, and newly prohibitive expense of, property/casualty and liability insurance against possible terrorist attack are forcing many businesses to go bare whether they like it or not.
In response, a number of trade associations and companies have joined forces to advocate in Washington on behalf of business insurance policyholders. Members of the Coalition to Insure Against Terrorism (CIAT) include the National Association of Real Estate Investment Trusts (NAREIT), the National Association of Manufacturers, and the U.S. Chamber of Commerce. Even the National Football League, many of whose teams and stadiums have been unable to procure reasonably priced insurance against terrorism, has joined the coalition.
“In commercial districts, and especially for trophy buildings, you’re seeing quotes for terrorism insurance premiums in the stratosphere, up to 10% of the insured value,” says Tony Edwards, senior vice president and general counsel for NAREIT. And the price hikes aren’t even limited to big-city downtowns. “We have a member that owns numerous shopping centers in the South,” says Edwards. “You wouldn’t think a shopping center in suburban Amarillo would be on the top of the list for a terrorist attack, but the quote they got was out of this world.” Unable to justify the expense to their investors, the company opted to go without. “And if they did have an event, it would be a complete loss,” says Edwards. “We question whether that is the equitable way of apportioning societal risk.”
According to the coalition, even if the direct target of a terrorist attack is a building, bridge, airport, or stadium, the real target is the United States government. And therefore, “it’s appropriate to have a governmental solution,” says Edwards, “at least until the insurance markets figure out how to insure against this type of thing. The event that’s being insured against is an attack on the political system, and we think that merits a political response.”
That response, according to the coalition, would take the form of a terrorism insurance bill that puts the government on the hook for damages above and beyond the amounts paid by policyholders (through their deductibles) and by insurance companies. One House bill would cap insurance companies’ risk at $10 billion, while a Senate bill would cap it at $20 billion; anything beyond that would come out of the government’s pocket. The Coalition is not so overly concerned with how the government comes up with the money. For example, one method advocates boosting premiums for all commercial property/casualty insurance policyholders to reimburse the government for funds paid out after terrorist attacks, while another doesn’t specify where the money will come from. The Coalition’s primary concern, according to Edwards, is finding a way to make terrorism insurance affordable and available for its members and commercial businesses nationwide. Many businesses are still insured because they purchased terrorism insurance before September 11, says Edwards, but it’s kind of like watching a train wreck in slow motion: “As each month comes by and their old policies expire, they have to make this impossible choice … and often the outrageous prices [of coverage] make the decision for them.”