‘Terrorism insurance’: A post-9/11 fact of life

‘Terrorism insurance’: A post-9/11 fact of life

The cowardly actions of a handful of radicals on the morning of September 11, 2001, spurred the collective realization that as a nation, we were not fully prepared to deal with the threat of terrorism at home. One area this in which this was acutely felt was the economics of insuring property against terrorism.

Insurance companies had previously offered the coverage but it had been akin to insuring your automobile against an asteroid strike. Coverage was affordable because the insurance company risk model pointed to “never” on the likelihood of a payout chart.  But after 9/11, terrorist attacks were a real thing in America and the devastation at Ground Zero and the Pentagon highlighted just how vast the damage could be.

Beyond the physical damage of 9/11 two contradictory reactions began causing significant economic damage. Just as banks and investors were realizing that terrorism insurance was a necessity for projects, insurers were realizing that they had no clue how to offer real terrorism insurance without risking bankruptcy in the event of an attack. Insurance companies found it impossible predict the frequency, scale and economic cost of another attack and stopped offering the coverage. This had a poisonous impact on the economy in general and on the construction industry in particular.

So, in 2002 Congress passed the Terrorism Risk Insurance Act which provided a financial backstop for insurers in the event of a catastrophic attack.

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