The Terrorism Risk Insurance Act: A Federal Backstop of Prevention

01/02/2008 |

The renewal of the Terrorism Risk Insurance Act will provide building owners and the buildings industry with a safety net for reconstruction and recovery after a terrorist attack

By Barbara A. Nadel, FAIA

The prospect of a violent global event impacting a U.S. or other national community and causing damage or fatalities to those in cities on the other side of the world cannot be overlooked when considering security planning. Terrorism remains a real threat to global society.

The assassination of Pakistani opposition leader Benazir Bhutto on Dec. 27, 2007, sent a chilling message around the world regarding efforts to spread democracy, stem terrorism, and reconsider the impact of American foreign policy on other governments. Some experts suggest Al Qaeda may have been behind this violent act because Bhutto openly threatened al Qaeda and had American support. Al Qaeda remains intent on attacking America and American interests.

In New York and major international cities, security was increased at embassies, facilities, and communities with Pakistani ties to thwart potential subsequent attacks by disgruntled groups or individuals, either foreign born or American, thus further underscoring how major events around the world can have a local impact on personal safety, building security, and the global economy. Several pundits were tracking the price of gold and the Wall Street markets for any changes after the Bhutto assassination to prepare for the ripples of what may have been a wider effect.

For building owners and tenants with properties in or adjacent to affected areas in situations like this, such as international businesses, tenants, and ethnic or religious communities, international terrorist events can give rise to a new round of local threats that lead to increased overtime costs, additional coordination with local law enforcement agencies, and lost business if people cannot access offices, retailers, schools, and civic and commercial venues. Foreigners or American residents can perpetrate vandalism, violence, and acts of terrorism on American soil. The net effects will be the same.

The U.S. House of Representatives had this in mind when it passed the Senate version of the Terrorism Risk Insurance Act (TRIA) renewal on Dec. 18, 2007, a measure deemed critical to rebuilding Lower Manhattan’s Ground Zero and other sites attacked by terrorism. The measure is expected to be signed by President Bush in 2008.

TRIA Background
After the 9/11 attacks, many insurance companies eliminated terrorism insurance from their policies, judging the potential losses from a major attack to be too great to insure against. In response, Congress passed TRIA, which created an insurance backstop from the federal government to protect against catastrophic, terrorism-related losses. It was intended as a temporary measure to allow the insurance industry to recover from 9/11 and develop their own solutions and products against acts of terrorism.

TRIA is a government insurance program that commits the U.S. federal government to paying for most of the damages in the event of terrorist attack in the next 7 years. It is a continuation of the original law created by Congress in 2002 after the 9/11 attacks on the World Trade Center and was renewed at the end of 2005 for another 2 years, until Dec. 31, 2007.

Among the various provisions of the original act was the definition of terrorism as an act that must have been committed by individual(s) acting on behalf of a foreign person or foreign interest as part of an effort to coerce the U.S. population or government. The program is triggered after an occurrence of an event as determined by the U.S. Secretary of the Treasury to be an act of terrorism. Losses from the act must exceed $50 million in 2006 and $100 million in 2007, up from the original $5 million trigger in 2002.

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