Terrorism Insurance Survey

Nov. 4, 2002
Terrorism Insurance Remains a Major Problem, According to Boma International’s Latest Survey.
Washington, D.C. - An overwhelming number of BOMA members cited difficulties in obtaining adequate terrorism insurance coverage at affordable rates - and many were unable to secure it under any terms or rates, according to a member survey conducted by BOMA International in September 2002. The results were disturbing: 26 percent of respondents were unable to obtain terrorism insurance at any cost. Of the remaining 74 percent who have been able to secure coverage, 87 percent incurred higher premiums; caps on coverage; higher deductibles; cancellation clauses of 60 days or less; and/or exclusions for chemical, biological, or radiological acts. The premium increases that building owners incurred ranged from an average low of about 20 percent to 200 percent.

Table 1Which of the following, if any, did you experience when contracting for terrorism insurance coverage?Higher premiums Ratio80%Higher caps on coverage40%Higher deductibles53%Cancellation clauses of 60 days or less24%Exclusions for chemical, biological, or radiological acts43%None of the above13%
In a down economy, the skyrocketing cost of terrorism insurance is especially troubling. Most building owners (81 percent) indicated that they would be forced to pass some or all of the costs on to tenants. Even more disturbing, 23 percent indicated that they were "self-insuring or going bare" for some or all of their portfolio. With such a high percentage of office buildings underinsured, it is easy to assume that the economic consequences of another terrorist attack could be astronomical (see Table 2).

When asked which factors negatively affected a company's ability to purchase terrorism insurance, geographic location topped the list with 69 percent of respondents indicating that it was somewhat more difficult or much more difficult to purchase insurance for portfolios in high-risk cities. It is important to note, however, that other respondents cited difficulties in insuring properties in areas that are not considered high risk or major market cities. Other negative impacts that received the "difficult" rating include building profile, location within a city (i.e. near landmark or trophy buildings), building size, replacement cost, and the amount of reinsurance available in the market at the time the policy came up for renewal.

Is there anything a building owner/manager can do to reduce insurance premiums and/or improve the terms? While 49 percent of survey respondents agreed that nothing helped, 29 percent said that providing insurers with detailed building data and insurance history helped and 25 percent said increased security helped. Other factors cited include long relationships with insurers and timing of renewals.

At press time, federal legislation that is expected to help ease these problems continues to languish in Congress. Both the House of Representatives and the Senate have passed legislation, and conferees have been appointed to resolve the differences. However, some fundamental differences exist between the two versions, and in the midst of a raging battle between the Republicans and Democrats to gain seats in November's mid-term elections, neither side seems willing to budge. Tort reform appears to be the most insurmountable issue, with Republican legislators aiming to limit potential legal actions to terrorists or conspirators (thus lessening the risk that a building owner/manager could face a civil lawsuit for not providing "adequate" security, as judged by 20/20 hindsight), while the Democrats want to wait until next year to debate the tort reform legislation separately from the terrorism insurance bill.

Table 2How is your company dealing with increased premiums?Passing costs on to tenants Ratio81%Higher caps on coverage23%Higher deductibles20%BOMA's survey should provide clear evidence to Congress that insurance coverage for terrorism events is unavailable at any price for fully one-quarter of office building customers, and the product that is available is faulty and most definitely does not meet the needs of building owners and managers. BOMA International's advocacy staff will use these results to continue to make the case to Congress that legislation to provide a federal backstop in the event of future terrorist attacks is absolutely necessary and must be enacted into law immediately.

For more information about the issues discussed in this column, visit BOMA International's website (www.boma.org).

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