With each passing month, as property and casualty insurance policies come up for renewal, more and more building owners and managers are discovering that their terrorism risk insurance will sunset at year’s end.
The Terrorism Risk Insurance Act (TRIA) is a 3-year program that was signed into law by President Bush in November 2002. The program is hailed by policy makers, insurance policy holders, and insurance companies alike as being a huge success. It is credited with enabling building owners and managers and the business community to purchase terrorism coverage that was widely unavailable in the 15 months following the terrorist attacks of 9/11. It is also widely credited for returning stability to the economy, as deals once stalled after 9/11 for lack of adequate insurance began to move forward, creating hundreds of thousands of jobs and restoring the free flow of capital in the commercial mortgage-backed securities market.
Though wildly successful, the future of the program is unclear. When first drafted, the legislation was envisioned to provide a short-term solution to stabilize the insurance and reinsurance marketplace while providing time for the private marketplace to mature and take over. Unfortunately, it has proven difficult, if not impossible, for the reinsurance industry to effectively assess and price the terrorism risk.
Now, 3 years later, business advocates are back on Capitol Hill lobbying Congress to pass a 2-year extension to TRIA and begin a public debate immediately on the long-term problems and solutions. Legislation has been introduced in both the House of Representatives (H.R. 1153) and the Senate (S. 467) to do just that. In the Senate, the legislation has bipartisan support but will not be considered until after the release of a study by the Treasury Department that is expected no later than June 30.
In the House, the issue has become intensely political. The legislation that has been introduced is sponsored by a group of Democrats and is not likely to move forward despite its widespread support. Republicans are expected to introduce a bill of their own. While the majority of House Republicans support the idea of a 2-year extension and the appointment of a commission to make recommendations for a long-term solution, one key Republican, Majority Leader Tom DeLay (R-TX-22), does not. DeLay is asking industry to propose a permanent private-sector solution. On the surface, this approach sounds quite reasonable and responsible; but the political reality is that a major new policy cannot possibly be drafted, studied, debated, and enacted in the short time remaining before the existing program expires on Dec. 31.
BOMA Intl., Washington, D.C., and its partners in the Coalition to Insure Against Terrorism (CIAT) adamantly believe that this program must not be allowed to lapse. A lapse in the program will halt new projects, add uncertainty to all of our businesses, and put our nation’s assets at risk. Furthermore, many commercial loans will be downgraded and/or considered in default, with the risk of very expensive terrorism policies force-placed. The end result will be another disruption to the economy that will weaken recovery.
Recently, key players have made public statements that give building owners reason for optimism. On March 3, Acting Assistant Treasury Secretary for Financial Institutions Greg Zerzan said, “There should be no doubt that TRIA has played a useful role in stabilizing markets and providing for the management of the threat of terrorism-related loss. Because of the importance of this element on the war on terror, insurers and insureds alike should know that this Administration is fully considering all of the possible options in order to make sure that this front is properly covered.” In addition, in February, before a House Financial Services Committee hearing, Federal Reserve Chairman Alan Greenspan said, “There are regrettable instances in which markets do not work ... I have yet to be convinced” that the terrorism insurance market can be made to work.
It is important to understand that while TRIA is a federal program and that the federal government may be on the hook financially in the event of another terrorist attack, the program includes a deductible and payback mechanism that ensures that the federal government is not on the hook for the first dollars. In fact, BOMA estimates that the government would only cover costs after industry covers the first $30 billion. To put this into perspective, insurance companies paid $32 billion to help rebuild New York City following 9/11.
The events of 9/11 led to the loss of more than 1 million jobs, the cancellation of $15 billion in real estate transactions, and caused commercial construction to hit a 6-year low. A national terrorism insurance program is vital to keep our economy growing.
Let your voice be heard! Log on to BOMA’s Legislative Action Center (http://capwiz.com/boma/home) and e-mail a letter to your representatives urging their support for a TRIA extension.
For more information on these issues, contact BOMA Intl. at (202) 408-2662 or visit (www.boma.org).