Who's On The Hook for Boston Claims?

With the insurance industry still struggling with bad press months after Hurricane Sandy, the recent bombing in Boston threatens to open another front.

The Wall Street Journal reports today that under the 2002 Terrorism Risk Insurance Act, if the bombing is officially declared an act of terror by the Treasury Secretary, insurance companies could deny coverage for certain losses. That's because like flood insurance, terrorism coverage is provided through an opt-in rider, reinsured by a government program, at the time a policy is sold. Businesses who didn't pick up the coverage could be out of luck:

Rattlesnake Bar & Grill on Boylston Street, which was closed for part of last week, doesn't have terror coverage. Co-owner John Gardner estimates lost business in the tens of thousands of dollars and holds out hope his insurer will cover some losses. He called the possibility that a terror declaration could keep him from getting compensated "the frustration of dealing with insurance companies."

I'm reminded again of what The Hartford CEO Liam McGee said at a conference earlier this year:

"Many people had no comprehension of what was covered… Both as underwriters and agents in the community, we have to do a better job of educating our customers that flood is not a covered peril. We also need to do a better job of educating entrepreneurs what causes business interruption coverage and what doesn't."

Clearly, insurers need to build more redundancy into their sales process so that exclusions for potential catastrophic events are delineated clearly and often throughout the policy issuance process, so that customers aren't surprised and angry later. A commenter on the Wall Street Journal article claiming to be an insurance agent said that this kind of coverage can cost as little as $75 per year. A woman in Howard Beach, Queens, affected by Hurricane Sandy paid $9,000 per year for insurance — and because no one adequately explained the benefit of a $400 flood rider, she "fumed" to her local paper.

Of course insurers and policyholders have been at loggerheads before, but there are exponentially more potential outlets for that to be publicized now than ever before. Adapting to new standards for customer experience and service doesn't just mean making it possible to fill out forms online — it has to include greater transparency as well. These and future events must catalyze the industry to make the process changes necessary to ensure that everyone is insured for their risk appropriately.

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio