The current word around the insurance industry is that by the end of the year, most policies will exclude terrorism. The reason we'll have to wait until the end of the year is because insurance companies insure their risk with reinsurance companies and most reinsurance policies renew on December 31, 2001. It is the general opinion of the industry that reinsurers will exclude all terrorism coverage. And if they do, insurance companies will undoubtedly do the same thing unless they want to explain to their shareholders why they decided to self-insure such a hot exposure.

Most companies are reluctant to slap exclusions onto policies right away because they don't want to be thought of as insensitive to their clients. Consequently, there may be breathing space for some companies for a little while longer.

A major insurer on the Island has already bitten the bullet and issued the first terrorism exclusionary language for property policies with the following explanation, "both the frequency and severity of future terrorism events cannot be determined adequately to allow for a commercial risk transfer mechanism".

Many people wonder why exclusions are applied to policies when clients seemingly need them the most. And if you're anything like my husband, and a few brokers I used to work with, who believe that insurance companies love to find any excuse not to cover something, then you are probably saying I knew they would do that. They collect our money then when we have a claim, the first thing they do is put exclusionary language on our policies. Who needs insurance?

Commercial Insurance is necessary to protect company's balance sheets and to compensate them when they have legitimate claims so they can be in the same position they were in prior to the loss. Insurance was founded on the premise of covering only unexpected and unintended (fortuitous) events. As I am writing this, I can hear every broker I ever worked with saying 'typical response from an underwriter!'

Insurance companies are in the business of making a profit so they can pay legitimate claims. Insurance companies are able to stay whole by virtue of the investment income they earn during loss free years. If there were no exclusions and the policies covered every event, insurance companies would go bankrupt because they would be paying for normal wear and tear of properties and every business risk a company encountered, to name a few. A business risk is the cost of doing business, i.e. a drug company knows that for every drug it produces, it will have an expected level of claims based upon known side effects. Insurance companies do not pick up the expected level of claims, instead they pick up the unexpected, the injuries that exceed the expected level. No insurance company wants to become a private banker for a company's cost of doing business.

Prior to September 11, 2001, no one expected terrorist attacks of such magnitude to hit the United States of America and that's why policies covered these types of losses because they were considered to be unexpected and unintended events. Policies have always excluded terrorist attacks in the UK and Middle Eastern Countries because terrorist attacks are common occurrences there. The United States, Mexico and Canada were probably the only three countries with terrorism coverage prior to September 11, 2001.

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