There’s a new insurance market emerging in light of a disturbing reality in today’s world: active shooter risks. The new coverage is meant to address a gray area in insurance policies that may leave insureds vulnerable to claims in the aftermath of an active shooter incident.

Incidents involving an active shooter, defined as one or more individuals actively engaged in killing or attempting to kill people in a populated area, are increasing around the country. An FBI study of 160 active shooter incidents in the U.S. between 2000 and 2013 found an average of 11.4 annually, or one every three weeks.

During the first seven years studied, there was an average of 6.4 incidents per year, but that number jumped to 16.4 in the latter seven years. The number rose again to 20 mass shootings per year in both 2014 and 2015, according to an analysis of active shooter incidents released by the FBI in June.

The FBI’s “Study of Active Shooter Incidents in the United States Between 2000 and 2013” found 70 percent of incidents took place in either a commerce/business or educational environment. The largest percentage of active shooter incidents (45.6 percent) took place in a business; 24.4 percent occurred in educational environments; and 10 percent on government properties. The shootings occurred in 40 out of 50 states and the District of Columbia and claimed the lives of 1,043 people.

That number has obviously grown in recent years, with the most notable recent active shooter incident at a nightclub in Orlando that left 50 people dead.

“The findings establish an increasing frequency of incidents annually,” the FBI report said. “This trend reinforces the need to remain vigilant regarding prevention efforts and for law enforcement to aggressively train to better respond to—and help communities recover from—active shooter incidents.”

Coverage Gray Area

The insurance market has begun to respond to this emerging risk with several new active shooter insurance programs, all launched this year.

The policies provide coverage for both pre- and post-active shooter incident services. Aside from recovering from the physical and emotional harm, the affected entities must pick up the pieces and respond to the situation. There is also the likelihood of lawsuits from allegations of negligence that allowed the incident to happen in the first place.

The problem, said John Powter, president of GDP Advisors in McKinney, Texas, is that there is a misconception among clients that their current insurance policy covers an active shooter event. Insureds may also believe that active shooter incidents are automatically covered by terrorism insurance, all of which can lead to a debate between insureds and their carriers.

While a property policy is designed to handle physical damage, the general liability part of a policy doesn’t clearly cover or exclude active shooter incidents, Powter said.

“There is a concern, or gray area, with the general liability policy—in reality it was never designed to cover an active shooter incident,” said Powter. “We think there is a disconnect there, and it’s a concern.”

Paul Marshall, program manager for McGowan Program Administrators’ new dedicated Active Shooter Division, said there has been little case law so far to establish if an active shooter incident is covered by an insured’s GL or professional liability policy.

“Some are saying it’s under GL, and some are saying it’s more of a professional liability ‘failure to protect’ type cover, but there is a little bit of confusion as to the response,” Marshall said. “What I tell agents is any time there is a new, unidentified exposure, the best way to manage that risk in the short term is with a named-peril policy.”

Active Shooter Insurance Market

Marshall said McGowan’s new program division offers a standalone, primary liability policy for lawsuits arising from harm caused by attacks using deadly weapons. It features risk assessment and crisis management services, as well as event responders and post-event counseling services.

Coverage limits are available up to $25 million, but Marshall said the company is really targeting smaller risks through low limits of $250,000 to $500,000 and minimum premiums starting at $500.

“We whittled down the policy limit so a small business can buy a policy and still get all the immediate services and loss control but don’t have to shell out thousands of dollars. We wanted to make it affordable for any risk that is out there,” Marshall said.

All classes of business will be considered, including healthcare, education, religious, lodging, entertainment, restaurants, night clubs and hospitality, to name a few. The coverage is available nationwide through a Lloyd’s line slip with four syndicates. A business income and expense coverage endorsement will be added to the coverage later this month.

GDP launched its Active Shooter Insurance Program in February of this year to address policy gray areas and the increase in these incidents.

The coverage was originally designed for educational institutions like public and private schools and universities because of the abundance of information available to underwrite the risk, Powter said. However, immediately after the program was launched, GDP started receiving coverage inquiries from other entities such as banks, hotels, sports venues and amusement parks. Now it will look at all classes of business.

“There is a lot of data about school shootings—that’s the saddest part about this program,” Powter said. “There is no excluded class, but there are some we can’t rate. We have recently added the following industries: healthcare institutions, special event including sports, retail, religious, government, and industrial and commercial risks…[The program’s] still in its infancy now.”

The coverage, available through Lloyd’s, is a primary policy with clear third-party coverage and no exclusions related to the types of incidents. It also addresses if an active shooter leaves explosives behind or doesn’t use a gun but another weapon such as a knife. Limits range from $1 million to $20 million, and premiums are based on several factors like number of students, location in terms of demographics, square feet and number of campuses.

Powter said the real value of the policy are the risk management and crisis-response pieces. The coverage includes onsite active shooter and security vulnerability assessment, preparedness seminars and training modules, as well as post-event crisis management services.

These services are important, Powter said, because many businesses and educational institutions are now taking steps to understand how to best respond if an incident occurs at their facility.

“It has become so commonplace that schools are now training for these situations. It’s a good thing. What they are doing is training people trapped inside to fight, because they know it will be over in seven minutes and average response from police is four minutes,” Powter said.

In fact, the majority of active shooter incidents (60 percent) actually ended before police arrived, according to FBI data of 63 incidents where the duration of the active shooter event was known. The FBI reported in its 2014 and 2015 analysis that citizens successfully acted to end an active shooter on six different occasions.

“Even when law enforcement was present or able to respond within minutes, civilians often had to make life and death decisions, and therefore should be engaged in training and discussions on decisions they may face,” the FBI report said.

Powter said part of the risk management service includes putting an action plan in place detailing what to do during an active shooter incident. The crisis response service involves dealing with the aftermath—getting a PR and disaster team on the ground within 12 to 24 hours to respond, handle the media and facilitate recovery.

“Ninety-five percent of companies don’t have this [resource], and the ability to handle loss is sadly part of the incident response. It can significantly reduce the number of claims,” he said.

Hugh Nelson, president of Southern Insurance Underwriters (SIU) in Alpharetta, Ga., said the key features of its new active shooter program for educational institutions are the risk and crisis management aspects.

“Depending on how many people are injured or killed, from a claims standpoint that could equal a fairly significant dollar amount. The allegation of negligence is easy to make, and the school would obviously have to defend itself as to what are reasonable or not reasonable steps it could have taken,” Nelson said.

SIU’s policy provides an upfront risk assessment done by an independent risk management firm that specializes in preparing people for active shooter events.

“They look at what plans are in place and things that can be done to improve those and make them less vulnerable,” Nelson said.

SIU’s primary policy will be expanded to other classes in the near future. It is available through a Lloyd’s syndicate that Nelson said has “extensive expertise in the terrorism field,” with limits of $1 million to $20 million.

“This is a primary liability policy under the GL policy that the school already has but also gives them extra limits,” he said.

The coverage also features a 24-hour crisis management service to help the educational institution respond immediately by setting up an emergency call center, advising on emergency communications, putting a recovery plan in place and arranging counseling services.

While Nelson said no amount of preparation can make a school administration completely ready for an active shooter incident, especially from an emotional standpoint, having the pieces in place to handle one of these devastating situations can help ease the burden if one occurs.

“When you look at Sandy Hook, Virginia Tech—these can be very significant events, and people need to be prepared,” Nelson said. “This policy brings a whole realm of experts to bear for the situation and provides an additional primary layer of insurance. It is prudent to add this coverage.”

Facing Reality

Marshall said he hopes this risk doesn’t become more prevalent and that it’s just a “sideline coverage.” However, McGowan has had significant interest already, including from those working on the Republican National Convention. Marshall said McGowan quoted the risk but that there was a “Trump exclusion because the underwriters consider him to be so litigious.”

The coverage is a scary reminder of the world we live in, Marshall said, but the job of those who work in insurance is to take care of their clients and “help make people whole.”

“Once we got past the denial factor that these incidents occur and made the coverage affordable for everyone, it was, ‘OK, how do we get it in the hands of everyone in the country?'” Marshall said.

GDP has also had significant interest in its coverage, particularly in the wake of events like the shooting in Orlando, and Powter said he expects the active shooter insurance segment will only grow in capacity and demand.

Eventually, he said, the gap that currently exists for GL policies will go from a gray area to excluded, as was the case with cyber risks and led to a huge new insurance market.

“There’s a problem in the industry no one is really talking about,” he said. “Sadly, active shooter incidents are the next cyber. This is the next wave that is going to happen.”