Terrorism and Insurance
Terrorism is a grave risk that is being faced by the entire world. When an event related to terrorism occurs, the losses faced by certain individuals or groups of individuals are catastrophic. The loss of human life is an obvious and sad outcome of terrorist attacks. However, the financial losses can also be significant. Increased incidents or terrorism lead to falling investor confidence. As a result, the overall economy of the nation can end up being damaged. Consider the case of Pakistan, where investors are not willing to invest any of their money for fear of terrorist attacks. The end result is that the entire economy is in doldrums and Pakistan basically survives on foreign aid in spite of having all the resources required to have a bustling economy.
However, investors are not at fault either. It is very difficult to invest in an economy where acts of terrorism can end up disrupting the supply chain. Also, it is important to note that businesses or individuals cannot really protect themselves from risks that arise due to terrorism. Most standard insurance policies exclude terrorism and risks or war from their coverage. There are some special policies which provide this coverage. However, such policies are few and not really dependable.
In this article, we will have a closer look at what terrorism is from the point of view of insurance. We will also try to understand why terrorism is not covered in most standard insurance policies.
Definition of Terrorism:
There is no standard definition of terrorism. Any act of violence which is carried upon non-combatant people by non-state actors is called terrorism. This includes acts of violence using chemical, biological and cyber weapons. These acts of violence are usually designed to intimidate people and influence certain political policy decisions.
It is important to note that the definition includes loss to humans as well as to property. However, it is also important to note that the definition mentions terrorism as an act being conducted only by non-state actors. Acts of violence conducted by state actors are termed as war. However, from the point of view of insurance coverage, there is not much difference. Most policies which exclude acts of terrorism from their coverage also exclude acts of war.
Reasons Why Terrorism Is Not Covered?
Insurance companies are happy to cover most unforeseen events in exchange for a premium. However, they are not willing to cover acts of terrorism because of the following reasons mentioned below:
To sum it up, there are multiple reasons why acts of terrorism are basically an uninsurable risk. Hence, it is not really likely that with the advent of time companies may start offering coverage for insurance.
Authorship/Referencing - About the Author(s)
The article is Written By Prachi Juneja and Reviewed By Management Study Guide Content Team. MSG Content Team comprises experienced Faculty Member, Professionals and Subject Matter Experts. We are a ISO 2001:2015 Certified Education Provider. To Know more, click on About Us. The use of this material is free for learning and education purpose. Please reference authorship of content used, including link(s) to ManagementStudyGuide.com and the content page url.