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Worst-Case Scenario

Active shooter situations are joining the list of tragedies that can be insured through corporate policies. But active shooter insurance is still relatively rare, with no consensus yet on what a typical policy should look like.

Beazley, a Lloyd’s of London affiliate, was one of the first underwriters to debut this type of policy late last year. The company declined to detail its policy terms, but Mark Turkalo, the national education and public entity placement leader at insurance broker Marsh, said the policy comes with a $20 million coverage limit. It’s too soon to tell what average premiums will look like, he said.

“It’s kind of hot off the press in a way,” Turkalo said.

Beazley confirmed it offers the policy, but declined an interview request.

“Beazley does offer some coverage to address potential gaps in liability insurance protections that organizations may face in the event of a violent accident,” a spokesman said in an email.

According to Turkalo, the policy has retentions starting at $10,000, which is the amount policyholders must pay before insurers respond to claims. The policy covers potential legal liabilities connected to shootings if employees or customers are injured and counseling services, among other claims.

In addition to traditional insurance coverage, Beazley will also provide a 24-hour crisis management service to clients, monitoring for shootings worldwide and leaping into action if a client’s employees or students are in the midst of an incident, Turkalo said. The product was first marketed to colleges, whose professors and students are often abroad at conferences, but attracted interest from hotels, hospitals and other companies.

While the additional insurance coverage is welcome, Turkalo said a lot of the client interest he’s seeing is due to the crisis services. He compared the insurance with Beazley’s data breach response product, which bundles insurance policies with a service to notify and protect customers affected by a client’s data breach.

“The intent here is mostly providing risk assessment of the possibility of something like this happening and post-event trauma services,” he said.

Workers’ Compensation

An active shooter is defined by federal law enforcement as someone engaged in killing or attempting to kill people in a concentrated or populated area. In most cases, there isn’t any pattern to their selection of victims.

Some aspects of active shooter situations will likely be covered by the basic types of insurance that most companies already have. According to a Marsh report from 2014, workers’ compensation insurance will cover claims tied to employees’ injuries, including PTSD. General liability insurance will pay for the medical care of customers, students or other third-parties injured or killed on a company’s property, as well as property damage.

There are also many excess insurance policies with crisis response endorsements, according to Marsh, which could cover crisis management and public relations services following an attack, funerals and grief counseling.

These policies generally won’t cover employers’ negligence or reckless behavior, such as not properly checking the background of job applicants for violent behavior or not responding properly to threats. Chris Olmsted, a shareholder at Ogletree Deakins Nash Smoak & Stewart PC and an expert on employment law, said different levels of care are required for various companies, based on their location and type of work.

“If someone comes in with enough firepower, you can’t stop someone who is hell-bent on killing people. At a certain point, no one can guarantee the safety of anyone else,” Olmsted said. “The standard for negligence is that the employer has taken reasonable care to avoid the risk of harm to its employees.”

Terrorism Coverage

Some insurers also offer terrorism coverage, which only applies to events certified as acts of terrorism by the federal government. But if companies decline terrorism insurance, some insurers are declining coverage for non-certified terrorism attacks, as well.

Based on the definitions some insurers are using for non-certified attacks, Marsh claims some active shootings could be classified as non-certified terrorist attacks and be excluded from typical umbrella policies. Those types of coverage gaps are what insurers offering active shooter products are hoping to fill.

Another potential gap involves business interruption insurance, which is added on to property insurance and pays when companies are forced to close and lose money following an incident. Insurer XL Catlin said physical damage to a business, its employees or customers is required to trigger coverage, so a company several stories up in a large building may not be covered if a shooting in the building’s lobby results in a temporary closure.

XL Catlin debuted its active assailant insurance late last month, spurred by the 2014 Sydney hostage crisis. The insurance, with a limit of $35 million and deductibles ranging from $10,000 to $1 million, includes coverage for property damage, business interruption, public relations, relocation, counseling, medical care, job retraining and additional security measures.

Ben Tucker, XL Catlin’s head of U.S. and Canada terrorism and political violence, said the company doesn’t have any confirmed clients yet for the new product, but has 12 pending contracts. Annual premiums could average under $100,000 for companies with more than $1 billion in insurable value and less than $25,000 for smaller clients.

Getting the Data

The product took about 18 months to underwrite as XL Catlin pored over information from past incidents. Tucker suggested coverage for U.S. companies was slightly easier to underwrite because there were more incidents of gun violence to include in its calculations.

“There isn’t a lot of data around terrorism, but there’s a relative frequency around shooting events, especially in the U.S.,” Tucker said. “Actuarially, we need to understand the limits and that became the most critical portion.”

Until several years ago, some insurers didn’t think active shooter situations could be properly underwritten due to their relative infrequency and randomness, according to Dan McGinnis, head of underwriting for CapSpecialty, which does not offer active shooter coverage. That has changed as companies widely adopt crisis response strategies that help mitigate liability, but McGinnis didn’t expect active shooter policies to become widespread soon.

“It’s absolutely in its infancy, even though variations of crisis response coverage have been around for several years,” McGinnis said. “There isn’t a large sample upon which to test how coverages are going to work and build a base of precedents for claims handling or pricing.”

McGinnis paused before continuing.

“It’s really awful to talk about there not being enough data points,” he said. “I hope there are never enough data points.”

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