Boston Bombing Lesson: Risk Managers Urge Better ‘Terror Act’ Certification

Citing uncertainty following the Boston Marathon bombing almost two years ago, risk managers are urging the federal government to set a deadline for certifying if an event is an act of terrorism and also use insurers’ figures for estimating losses to speed up the decision-making.

The Risk and Insurance Management Society (RIMS) says extended uncertainty after the April 2013 Boston tragedy over whether the attack would be ruled a certified terrorist act for insurance purposes left “many policyholders in limbo.” Such certification is required under the federal Terrorism Risk Insurance Act (TRIA).

In a letter to the Treasury Department, RIMS recommended the government adopt a 60 to 90 day deadline from the date of an event to make a formal decision on whether to certify it as an official act of terrorism.

Property/casualty insurers and policyholders look to the government’s certification for guidance in deciding whether and how a claim is covered. Acts of terrorism are excluded from most standard business insurance policies but may be payable under separate terrorism insurance coverage, if a businessowner has bought it.

“For several months following the 2013 Boston Marathon bombings, there remained a great deal of uncertainty surrounding whether the attack would be certified as an ‘act of terrorism’ for the purposes of TRIA,” RIMS wrote. “This left many policyholders in limbo. Those that had chosen to purchase terrorism coverage were unable to have claims paid under that coverage as policies typically required the act to be certified,” RIMS stated.

The uncertainty also affected those without terrorism coverage, according to the group.

“Likewise, those business owners who had chosen to forego terrorism insurance were at risk of having claims denied if the act was certified as acts of terrorism are generally excluded from standard property and casualty policies,” it wrote.

For an event to be certified as a terrorist attack under TRIA, the government must find that several conditions have been met. The act must endanger life and property and have been taken to influence the public or government policy. Also, the aggregate loss must exceed $5 million.

The Treasury has never officially certified the Boston Marathon bombing as an act of terrorism. In its last public statement in September 2014, a U.S. Treasury spokesperson said, “The Secretary has not determined that there has been an ‘act of terrorism’ under the Terrorism Risk Insurance Act.”

The Treasury may not have made a conclusive determination because the $5 million property/casualty claims threshold has apparently not been met.

Massachusetts Insurance Commissioner Joseph Murphy told Insurance Journal last April (a year after the bombing) that as of Jan. 24, 2014, the state’s top 25 insurers and the residual market insurer had reported 207 Boston bombing-related property/casualty insurance claims. He said at that time that about 96 percent of the claims had been resolved, with the overall paid loss amounting to about $2 million.

The data also revealed that among the 160 commercial property and business interruption claims made as a result of last year’s bombing, less than 14 percent had separate terrorism.

Robert Hartwig, economist and president of the Insurance Information Institute, said last September that “it is clear that the $5 million threshold was the principal criteria that was not met” pursuant to TRIA. “If any of the criteria are not met, it cannot be certified under law. And it’s clear that it fell short of the $5 million threshold,” he said.

RIMS is now suggesting that uncertainty of the sort experienced after the marathon tragedy be avoided in the future.

The group is recommending that in addition to having a deadline, the government use insurers’ early assessment of the total loss projected from an event as the “insured loss” threshold for TRIA until additional information is collected, rather than waiting for other data.

“This would expedite the process for determining whether the event meets the required TRIA trigger,” RIMS said in its letter.

Also, regarding the proposed 60 to 90 day deadline, Treasury could request a 30-day extension as long as it explained “why an extension is necessary and where current insured losses stand,” RIMS suggested.

If an act is certified as an act of terrorism, TRIA provides insurers with a backstop mechanism for losses incurred from terrorist attacks but only after certain large loss thresholds are met. Last session Congress renewed the TRIA program for six years. The current law raises the trigger amount needed in total losses before the TRIA program kicks in from the current $100 million to $200 million, over five years, beginning in calendar year 2016.

Under the extension of TRIA for 2015, the Treasury secretary is to make the decision on whether an act is an act of terrorism in conjunction with the secretary of Homeland Security.

Related:

• Mass. Regulator on Boston Bombing Claims, TRIA Reauthorization Effort
• Treasury Hasn’t Determined Boston Bombing Was ‘Act of Terrorism’ Under TRIA
• Businesses, Insurers Tangle Over Boston Marathon Loss Payouts
• Senate Passes TRIA; Bill Goes to President Obama’s Desk
• Revised TRIA Law Could Harm Small Insurers, Warns S&P