Standard commercial property insurance policies, including business owners policies, have traditionally covered damage to physical property from riots, civil commotion and vandalism. Both named-perils and all-risks policies typically include these causes of loss. Buildings and their contents are protected.
Recently, however, some major insurers in the United States have cut back. They've stopped providing coverage in commercial property policies for strikes, riots and civil commotion in areas hard hit by violent protests. In 2020, losses from politically motivated destruction and looting exceeded $2 billion.
3 types of stand-alone policies
Businesses and other organizations may need to procure financial protection from such damage outside of their standard commercial property policies. This is particularly true in cities but also in affected suburban areas. If your coverage has been affected by these exclusions, you may be offered three different types of stand-alone insurance policies to fill the gaps. Each insurer has specific risks it covers, but the following is a general description of the products and their intended protections.
1. Terrorism insurance may be the most famous of the political violence products. It was developed as stand-alone protection after the terrorist attacks of 9/11, when insurers removed broad terrorism coverage from commercial insurance policies. While colloquially people refer to many acts of violence as terrorist attacks, not one event has been certified by the U.S. government as “terrorism.” For years, government certification was required for coverage to kick in. But now, more policies are being written to cover acts of terrorism not certified by the U.S. government.
These policies can be customized, and may even include chemical, biological, radiological and nuclear attacks. Limits and deductibles are all customizable, and insurers increasingly have specialty claims teams and crisis management services designed to respond to terrorism events.
2. Political violence insurance is a somewhat new product that aims to address many actions that can lead to property destruction. While different insurers combine coverages in their own ways, political violence insurance generally includes damage incurred from civil wars, insurrections, revolutions, coups, mutiny, riots, strikes, civil commotion and malicious damage.
In many policies, terrorism is also covered. And any listed perils that aren’t automatically included in your political violence policy can often be added by extension. Business interruption (income loss) protection is also sometimes included or can be added. Some insurers also offer political violence coverage for overseas business locations.
There are important contract terms that restrict political violence policies. You should fully understand each one. For example, it is common to find a clause that withholds coverage for any loss that would, without the existence of the political violence policy, be covered by another insurance held by the policyholder. It also often excludes coverage for bodily and mental injury to people.
Your organization will likely be required to do reasonable things to avoid or mitigate losses, like boarding up windows and doors or moving inventory elsewhere if you know a riot is imminent or probable.
3. Political risk insurance is the broadest type of policy in this family and is largely intended for organizations with overseas interests. It typically includes confiscation or nationalization of your property or assets, sudden inconvertibility or nontransferability of currency, contract frustration and political violence. Some may even include terrorism and war coverage. Companies that operate solely in the United States typically are less exposed to financial losses covered under political risk policies and may find political violence insurance more appropriate.
Some political violence policies include à la carte menus of specific covered causes of loss. This allows you to tailor your policy to the perils you consider most important and threatening. For example, you might leave out terrorism or sabotage but include riots, strikes and civil commotion.
Be aware that deductibles, trigger thresholds, and premiums may be higher than you are used to for standard commercial property coverage. Some insurers include sublimits for certain occurrences, meaning you won’t have access to the entire amount of coverage in those situations. You might also have separate deductibles and/or limits for property damage and business income protection.
You should read and understand the definitions of political violence, terrorism and other terms in your insurance policy. Are acts motivated by political persuasion, religion and ideology covered? Are lone acts of a violent person considered terrorism?
Some policies charge premiums on a percentage basis while others set a fixed cost per location. Keep in mind that some association insurance programs and insurers exclude certain high-risk cities. If you are in one of these locales, your insurance adviser may have to turn to more expensive solutions.
Protection for key individuals
These are less common solutions, but if your company exempts key people from workers' compensation and you are concerned about their safety, you may want to talk to your insurance professional about coverage for political violence risks.