Real Estate and Insurers Urge Swift Senate Action on Expiring Terrorism Insurance Law; Hearing Reveals Strong Bipartisan Support for TRIA’s Reauthorization
In Senate Banking Committee testimony on Tuesday, real estate and insurance industry representatives urged timely reauthorization of the Terrorism Risk Insurance Act (TRIA) — well before the law’s scheduled expiration on Dec. 31 — to protect U.S. national and economic security, as well as commercial real estate credit availability. Witnesses also emphasized the need for long-term certainty regarding the program, calling for a minimum extension of 7 years, but preferring a permanent one. (Archived webcast available online)
Real Estate Roundtable member W. Edward Walter (Host Hotels and Resorts, Inc.), who spoke on behalf of the multi-industry Coalition to Insure Against Terrorism (CIAT), said the 9/11-era law and its subsequent extensions have played a critical role in protecting the American economy and maintaining liquidity in commercial real estate credit markets. [Read testimony]
“In the current climate, banks and other capital providers have indicated they will not provide new financing without terrorism insurance,” said Walter, explaining that loan covenants typically require terrorism insurance coverage on the underlying collateral. Insurers, meanwhile, are writing exclusions into policies that run beyond Dec. 31 — just in case TRIA ultimately is not extended.
Even now, 10 months before the law is scheduled to sunset, said Walter, “borrowers are being forced to confront the question of what options will exist after year-end 2014. . .The lack of clarity around this issue will likely slow the pace of new financing, especially in the case of properties that are perceived to be at a higher risk of terrorist attacks.”
Failure by Congress to act now, he declared, would “run the risk of short-circuiting” economic recovery (Business Insurance, Feb. 25).
Similarly, in a written statement, Roundtable President and CEO Jeffrey D. DeBoer characterized the potential inability to obtain terrorism insurance as a “key headwind” to economic growth and job creation. He added, “TRIA helps ensure economic security at very little cost to the taxpayer. We look forward to working with Congress and the Administration to extend TRIA before its December 31, 2014 sunset date.”
Bill Henry (McQuerry, Henry Bowles and Troy), who testified this week on behalf of the Council of Insurance Agents & Brokers (CIAB), echoed Walters’ remarks, saying that the exclusions being written into policies now “will cause problems for long-term construction projects, workers’ compensation, and other coverages as the end of the year draws closer” (PropertyCasualty360.com, Feb. 25).
Henry characterized terrorism risk as basically uninsurable, given its deliberate and unpredictable nature, and the lack of data on which to base premiums (Money News, Feb. 26).
The hearing revealed strong bipartisan support for TRIA reauthorization among Senate Banking Committee members.
Other witnesses at Tuesday’s hearing included:
• Carolyn Snow, Risk and Insurance Managements Society (RIMS);
• Vincent T. Donnelly (PMA Insurance Group), on behalf of the Property Casualty Insurers Association of America;
• Warren W. Heck (Greater New York Insurance Companies), on behalf of the National Association of Mutual Insurance Companies;
• Douglas G. Elliot (The Hartford), on behalf of the American Insurance Association
In an encouraging sign, the hearing revealed strong bipartisan support for TRIA reauthorization among Senate Banking Committee members, including Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID).
Discussion of TRIA Mechanisms to Reduce Taxpayer Risk
Some lawmakers suggested reforms might be needed to put more private capital at risk ahead of the federal backstop, in a bid to reduce taxpayer exposure. Ideas floated included making recoupment of the federal share mandatory; and changing the co-share from 85-15 to 80-20.
Also discussed during the hearing were TRIA’s use in the event of a cyber attack; and the fact that terrorism poses a risk to communities, businesses, infrastructure owners and institutions of all kinds across the country.
As witnesses explained, TRIA includes significant taxpayer protections, as first-dollar losses are paid by insurers and policyholders; federal outlays are only triggered in the event of a major event (after individual insurer loss thresholds are met); and the federal government may seek recoupment of losses from policyholders.
“Should this program lapse and coverage be unavailable, the government, and therefore the taxpayers, would face pressure to cover uninsured losses completely,” Sen. Mark Kirk (R-IL) warned in a written statement.
Similarly, in a Feb. 24 letter to the committee leadership, the U.S. Chamber of Commerce warned that if Congress fails to extend TRIA, the federal government would almost certainly be called upon to make significant expenditures after a large-scale attack on the United States. “The Chamber strongly supports TRIA’s current structure as it ensures the involvement of private-sector capital from the outset while also protecting U.S. taxpayers.”
Also discussed were TRIA’s use in the event of a cyber attack; and the fact that terrorism poses a risk to communities, businesses, infrastructure owners and institutions of all kinds across the country. “Terrorism is not a West Coast or East Coast issue,” Kirk asserted, adding that terrorists have plotted attacks in at least 29 states and the District of Columbia since 9/11.
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