Policy Issues

The Roundtable urges Congress to work swiftly to pass a long-term reauthorization of the Terrorism Risk Insurance Act (TRIA), which is currently set to expire at the end of 2020.

Originally enacted in 2002 in response to the inability of insurance markets to predict, price and offer terrorism risk coverage to commercial policyholders, TRIA was extended in 2005, 2007 and again in 2015 – following a 12-day lapse when Congress failed to complete their work on reauthorization at the end of 2014.  

TRIA is essential for commercial real estate as lenders require “all risk” insurance coverage – including terrorism coverage – to cover the risk of loss to the collateral.  At virtually no cost to the taxpayer, TRIA has allowed our economy to move forward even in the face of terrorist threats.  The program has been, and remains, extremely effective in achieving its primary purpose, which was to stabilize the market following 9/11 and to ensure the continued availability of terrorism coverage for commercial policyholders in the future.  (Congressional Research Service, Terrorism Risk Insurance: Overview and Issue Analysis for the 116th Congress, April 26, 2019)

According to a 2019 Marsh study, the education, media, financial institutions, real estate, hospitality and gaming, and health care sectors had the highest 'take-up' rates among the 17 industry segments surveyed – all above 70%. TRIA fosters certainty in the marketplace and allows all of these interconnected elements of the economy to continue to move forward. There is no homeland security without economic security.

In 2018, the Treasury Department reported that “the Program has made terrorism risk insurance available and affordable in the United States, and the market for terrorism risk insurance has been relatively stable for the past decade.” The report demonstrates the importance of reauthorizing the Program. Absent the Program, there is not sufficient insurance and reinsurance capital available to provide comprehensive terrorism coverage to U.S. insurance buyers. 

A RAND Corporation study states that, "In the absence of a terrorist attack, TRIA costs taxpayers little, and in the event of a terrorist attack comparable to any experienced before, it is expected to save taxpayers money."  In addition, a change made to TRIA in the last reauthorization builds in a continual shrinkage of the taxpayers' exposure to terrorism losses with each succeeding year.  As a result, the key “dials” are already effectively indexed to premium growth at both the company and industry level, and the federal share will continue to decrease in future years even if Congress makes no changes to the program beyond a straight extension of the expiration date.

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  • Terrorism Risk Insurance Act of 2002 (TRIA) – Overview

    • Some insight into the effects of a lack of terrorism insurance were shown during the 14-month period between the September 2001 terrorist attacks and the November 2002 passage of TRIA.   In September 2002, a Real Estate Roundtable survey found that “$15.5 billion of real estate projects in 17 states were stalled or cancelled because of a continuing scarcity of terrorism insurance.”  Additionally, Moody’s Investors Service downgraded $4.5 billion in commercial mortgage-backed securities "citing concerns about terrorism insurance coverage." (Roundtable News Release, Sept. 19, 2002 and Moody's, Sept. 27, 2002) 
    • On Oct. 12, 2002 President George W. Bush said, "The lack of terrorism insurance has delayed or cancelled more than $15 billion in real estate transactions. The $15 billion worth of delay has cost 300,000 jobs – jobs to carpenters and joiners, bricklayers, plumbers and other hardworking Americans." (Radio Address by the President to the Nation, White House Archives, Oct. 12, 2002)
    • Working with the FIO, the TRIA Advisory Committee on Risk-Sharing Mechanisms (ACRSM); the insurance industry; our policyholder coalition (CIAT); and Congressional and Administration policymakers, The Roundtable is focused on developing an effective, long-term approach for a federal terrorism risk insurance program.   Such a long-term program should enable policyholders to secure the terrorism risk coverage they need without facing periodic renewals by the federal government. 
    • With TRIA reauthorization now facing expiration at the end of 2020, the Senate Banking, Housing and Urban Affairs Committee held a hearing on June 18, 2019 on "The Reauthorization of the Terrorism Risk Insurance Program" that featured testimony from specialists from Marsh, the Congressional Research Service and Wharton.  One key finding of  Marsh’s 2019 Terrorism Risk Insurance Report is that education, health care, financial institutions, and real estate sectors had the highest ‘take-up’ rates among the 17 industry segments surveyed – all above 70%.   

  • Extending the Nation’s Terrorism Risk Insurance Plan

    The Roundtable is focused on developing an effective, long-term approach for a federal terrorism risk insurance program.   Such a long-term program should enable policyholders to secure the terrorism risk coverage they need without facing periodic renewals by the federal government. 

  • TRIA Advocacy

    • The staggering economic impact of this market condition must not be forgotten. A Real Estate Roundtable survey about the 14-month post-9/11, pre-TRIA period revealed that more than $15 billion in real estate related transactions were either stalled or cancelled because of a lack of terrorism insurance.  The White House Council of Economic Advisors estimated that 300,000 jobs were lost due to delayed construction projects during this period, and Moody’s Investors Service downgraded $4.5 billion in commercial mortgage-backed securities (CMBS).  TRIA was intended to ensure that the economy was strong enough to withstand a future attack. That purpose remains as important today as it was in November 2002 . 
    • Working with the FIO, the TRIA Advisory Committee on Risk-Sharing Mechanisms (ACRSM); the insurance industry; our policyholder coalition (CIAT); and Congressional and Administration policymakers, The Roundtable is focused on developing an effective, long-term approach for a federal terrorism risk insurance program.   Such a long-term program should enable policyholders to secure the terrorism risk coverage they need without facing periodic renewals by the federal government. 

  • Marsh's 2019 Terrorism Risk Insurance Report

    According to a  2019 Marsh Terrorism Risk Insurance study, the education, health care, financial institutions, and real estate sectors had the highest take-up rates among the 17 industry segments surveyed – all above 70%.

    Last month, Marsh's property terrorism placement and advisory leader Tarique Nageer testified before the Senate Banking Committee stating that the expiration of TRIPRA without a replacement could create capacity shortfalls, especially for firms with "significant workers' compensation accumulations. 

    Nageer stated, "We are already seeing an impact on policies that extend beyond 2020, with some insurers either seemingly unwilling to offer terrorism coverage beyond the expiration of TRIPRA or seeking to increase prices to cover the additional risk to their portfolios. Without a decision to reauthorize or extend TRIPRA, we expect to see more sunset provisions in policies and higher costs as we get closer to December 31, 2020." (Nageer's testimony, June 18)

     

  • 2018: Report on the Overall Effectiveness of the Terrorism Risk Insurance Program

    A  June 2018 report by the Treasury’s Federal Insurance Office (FIO) entitled  Report on the Overall Effectiveness of the Terrorism Risk Insurance Program concluded:  

    • The TRIA Program generally has been effective in making terrorism risk insurance available and affordable in the insurance marketplace.
    • Treasury has not observed any aspects of the Program (either based upon the collected data or operation of the Program generally) that have had the effect of discouraging or impeding insurers from providing P&C insurance in general, or coverage for acts of terrorism specifically. 
    • The Program serves as an important backstop to workers’ compensation insurance, given that under state law, workers’ compensation insurance must cover terrorism risk, is not subject to limits of liability, and cannot exclude causes of loss posing extreme aggregation risks.
    • Treasury’s estimate of total earned premiums for terrorism risk insurance from 2003 to 2017 is approximately $37.6 billion (excepting captive insurers), which is between 1 and 2 percent of the total premiums earned in the TRIP-eligible lines of insurance during that period. 
    • Maintaining TRIA is critical to protecting the economy from potentially catastrophic losses and the kind of paralysis that ensued after 9/11. It is also critical to ensuring the continued availability of credit for commercial real estate, since terrorism insurance coverage is required by lenders as part of most loan covenants.  
    • A September 2004 report, The Ecconomic Importance of Federal Participation in Terrorism Risk, was co-authored by R. Glenn Hubbard, dean of Columbia University’s Graduate School of Business and former chairman of the White House Council of Economic Advisers; and Bruce Deal, managing principal at Analysis Group, Inc., an economic, financial, and business strategy consulting firm.  The authors state that “fundamental issues specific to terrorism. . . make these risks very difficult for private insurers to fully absorb,” and that “eliminating the likelihood and location of such extreme events is virtually impossible.”

  • Other Resources

     

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The Real Estate Capital Policy Advisory Committee (RECPAC) is co-chaired by Dennis Lopez (QuadReal Property Group), Mark Myers (Wells Fargo) and Diana Reid (PNC).  RECPAC consists of principal members from a broad spectrum of real estate investment, ownership and financial services companies.

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