Washington, D.C. – At the end of 2002, real estate won a tremendous victory with the passage of the Terrorism Risk Insurance Act of 2002. By all indications, the program is working – but its future is in doubt for 2005 and beyond.
The Terrorism Risk Insurance Act (TRIA) was passed by Congress in November 2002 after an all-out lobbying blitz by the Coalition to Insure Against Terrorism (CIAT), a broad coalition of insurance policyholders, which includes BOMA International. The act is set to expire at the end of 2005 unless Congress acts to extend it. In addition, one of the key provisions of TRIA, which mandates that insurance companies “make available” terrorism insurance on the same terms and conditions as property and casualty insurance, expires at the end of 2004. Whether or not to extend this provision of the act is the decision of the Treasury Secretary, who must act by Sept. 1, 2004.
Under TRIA, federal funds of up to $100 billion were to be made available to cover losses should another terrorist attack occur. The federal government’s share would be 90 percent of losses above the deductible. Insurance company deductibles were set at seven percent of premiums the first year, 10 percent the second year, and 15 percent the third year. It is important to point out that since no large-scale terrorist attacks have occurred in the United States since the implementation of TRIA, there have been no costs to the federal government – or taxpayers.
BOMA International and CIAT strongly believe that TRIA is working. However, BOMA does not believe that the private insurance market can function well in the absence of such a federal backstop. BOMA and CIAT are working to encourage the Treasury Secretary to extend the “make available” provision and working with Congress to educate them on why a program must be in place.
CIAT has also called on President Bush to recommend to the Secretary of Treasury that he extend the “make available” provision of TRIA this year. In a letter to the White House, CIAT states that, “Although we had hoped initially, like all who were involved in the passage of TRIA, that a significant private market for terrorism reinsurance would emerge in a post-9/11 TRIA environment, this does not appear to have happened. Consequently, we are seriously concerned that with the absence of a ‘mandate’ in 2005 under TRIA and with a paucity of private market reinsurance available, primary insurers will not offer, or ‘make available,’ significant, comprehensive terrorism insurance for the 2005 marketplace. This is especially troubling since the current marketplace is already handicapped by the unavailability of insurance against biological, chemical, radiological, and nuclear events – even though TRIA backstops such events – and the very limited availability of insurance against terrorism not covered by TRIA (so-called ‘domestic’ events).”
The National Association of Insurance Commissioners (NAIC) has also weighed in to support Congressional action on this issue. But Congress and the White House are also hearing a message in opposition to the extension of TRIA. The Consumer Federation of America (CFA) released a report on April 19 that states that “the private sector will be covering the entire risk by 2005 in all but nine large cities,” and therefore there is no need for a renewal of TRIA. These nine localities are New York City; San Francisco; Washington, D.C.; Chicago; Suffolk County, MA; King County, WA; Los Angeles County, CA; Harris County, TX; and Philadelphia County, PA. According to the CFA report, “The only question is whether these nine cities, identified by industry experts as the most likely target areas of terrorists, need any taxpayer support beyond 2005. As a result, CFA believes that there is no need to extend the Terrorism Risk Insurance Act of 2002 when it expires at the end of 2005.”
BOMA and all the members of CIAT will continue to educate the White House, Secretary of Treasury, and Congress on the need for some type of federal backstop to ensure that in 2005 and beyond, building owners are able to secure adequate levels of terrorism insurance coverage at reasonable rates and terms. BOMA encourages all building owners and managers to contact their members of Congress in support of congressional action on this important issue.
For more information, contact BOMA International at (202) 408-2662 or (www.boma.org).