Reader Question

Terrorism insurance could be a good choice

Question: Should we invest in terrorism insurance for our facility? I hear that it’s growing in popularity, but should our hospital be considered a likely target?

Answer: Terrorism insurance is a realistic option for health care facilities and might be quite necessary for some facilities that are more likely to the target of attacks, says Stephen Lundin, senior vice president of insurance broker Marsh in New York.

Many insurance companies stopped offering terrorism insurance after the attacks of Sept. 11, 2001, but a federal program called the Terrorism Risk Insurance Act was introduced in November 2002 to encourage the market. Since then, Marsh has been offering terrorism insurance and tracking data such as pricing and take-up rates in the health care industry and other sectors. Early in 2004, Marsh noted an increase in terrorism insurance purchases across all industries, including health care, he reports.

"During 2003, roughly one-third of our health care clients purchased terrorism insurance," Lundin says. "So far during 2004, that percentage has come close to 50% of our health care clients."

That figure is consistent with the overall rate across all industries, Lundin says. Fifty-two percent of commercial real estate owners purchased terrorism insurance in the first quarter of 2004, up from 28% in the fourth quarter of 2003.

A lowering of insurance rates drives the increase overall on all insurance products, Lundin says. Rather than taking the savings home, many health care providers are instead shifting it into terrorism insurance that they did not previously have or related products such as risk transfer solutions or business continuity planning, he says.

Some of the increase also might be attributable to lenders requiring building owners to have terrorism insurance, especially in the Northeast and urban areas with a concentration of tall buildings and financial headquarters, he says. "In addition to terrorism insurance, a lot of our clients are making sure they have the right processes and systems in place in the event of disruption," he says. "The terrorism insurance itself can be only part of a bigger effort to prepare for such an event."

Typically, Lundin explains, terrorism insurance covers damage from terrorist attacks that occur in the United States, committed by persons acting on behalf of a foreign entity, as part of an effort coerce the nation or cause damage to the United States. You also may purchase broader coverage that would cover attacks by a domestic entity, such as happened with the Oklahoma City bombing in 1995.

So how do you know if terrorism insurance is right for your health care institution? The answer depends largely on where you are located and your type of facility. A large urban facility is the most likely target for a terrorist attack, either as the direct target or part of a larger metropolitan disaster.

"Your corporate governance practices can be another driving factor," Lundin says. "With compliance issues that require a company to follow best practices regarding business planning, you might need to look at the opportunity to buy terrorism insurance and continuity planning as well."

Lundin advises seeing terrorism insurance as one part of an overall plan to respond to a terrorist attack. Interested risk managers should consult their own insurers or brokers, he says.