Answer to Question #7668 in Economics of Enterprise for Your name...

Question

Should an insurance company extend commercial property insurance cover to include terrorism risk.

Answer 1

Generally, there are three types of insurance policy in the U.S.:
• Basic form policies typically cover common risks.
• Broad form policies typically cover the common risks in addition to water damage, structural collapse, sprinkler leakage, and damage caused by ice, sleet, or weight of snow.
• Special form policies cover all types of risks except those the policy specifically excludes. Common exclusions include damages from flood, earth movement, war, terrorism, nuclear disaster, wear and tear, and insects and vermin.
In my opinion, there is no need to include terrorism risk coverage into basic property insurance for several reasons. Firstly, such extension would increase the cost of basic commercial insurance package. Consequently, the owners or tenants of commercial property would contemplate whether they can afford this particular insurance service. Secondly, the probability of terrorist attack is infinitely low in most cities\counties. Thirdly, there is always an option of including terrorist risk protection to your commercial property insurance policy (see “special form policies”) if you feel that this risk is becoming more and more pressing for your business.