The US Government Accountability Office (GAO) recommended in a June 21 report that the federal government should assess the need for a potential insurance backstop for cyberattacks on critical infrastructure. (GAO summary “Cyber Insurance: Action Needed to Assess Potential Federal Response to Catastrophic Attacks”)
Growing Cyber Threats
- With the growing proliferation of cyberattacks, the challenge of mitigating and managing this expanding risk poses an increasing challenge to the U.S. economy and real estate.
- Insurers and the government’s terrorism risk insurance program originally established under the Terrorism Risk Insurance Act (TRIA) may not be able to cover the expanding range of such losses. For example, TRIA may only cover cyberattacks if they can be considered “terrorism” under its defined program criteria.
- TRIA was reauthorized in 2019 and extended for seven years through 2027. The legislation included a request for a study on evolving cyber terrorism risks. (Coalition to Insure Against Terrorism)
- The Roundtable has raised concerns about the need for policyholders to have access to effective insurance products to help manage the risks of catastrophic cyberattacks—particularly in the context of TRIA-backed coverage for cyber terrorism attacks. (See May 16, 2022 joint comment letter on “2022 Report on the Effectiveness of the Terrorism Risk Insurance Program”)
- This month’s GAO report acknowledges that although some cyber incident costs are covered in part by the private cyber insurance market, growing cyber threats have created uncertainty in this evolving market.
- The report also notes that cyber incidents can spill over from the initial target to economically linked firms, thereby magnifying damage and threats to the overall economy. “Cyber insurance and the Terrorism Risk Insurance Program (TRIP)—the government backstop for losses from terrorism—are both limited in their ability to cover potentially catastrophic losses from systemic cyberattacks,” the report adds. (See report summary)
Federal Insurance Backstop
- Federal agencies “have not assessed the extent to which risks to critical infrastructure from catastrophic cyber incidents and potential financial exposures warrant a federal insurance response,” the report states.
- GAO states a government study that addresses a federal insurance response should include clear criteria for coverage, specific cybersecurity requirements, and a dedicated funding mechanism with concessions from all market participants.
- The report concludes that the Department of the Treasury’s Federal Insurance Office (FIO) and the Department of Homeland Security’s Cybersecurity and Infrastructure Security Agency (CISA) should jointly assess the cyberattack risks that warrant a federal insurance response, and inform Congress of the results of their assessment.
The Roundtable’s Homeland Security Task Force discussed the issue of cybersecurity and a potential federal backstop during its June 17 meeting, held in conjunction with The Roundtable’s 2022 Annual Meeting. (Roundtable Weekly, June 17)
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Legislation introduced this week in the House by Rep. Carolyn Maloney (D-NY), above, would create a federal backstop to ensure coverage in all critical commercial lines of insurance for business interruption losses, whether from future pandemics or other public health emergencies. The Real Estate Roundtable and the Business Continuity Coalition strongly support the bill. (ConnectCRE, Nov. 2)
PRIA & Risk Exposure
- The Pandemic Risk Insurance Act (PRIA) of 2021 (H.R. 5823) is modeled after the Terrorism Risk Insurance Act (TRIA) – the enduring, successful public-private backstop adopted following the 9/11 terrorist attacks. (Maloney | Roundtable | Coalition news releases, Nov. 2)
- Real Estate Roundtable President and CEO Jeffrey D. DeBoer, above, said, “PRIA is an important step forward that helps to address possibly the largest unhedged risk exposure in the U.S. economy today. It is important for business policyholders to be able to secure the pandemic risk coverage necessary to maintain jobs and grow the economy. The Real Estate Roundtable and its 19 national real estate trade association partners have seen firsthand how a broad range of economic risks, including terrorism (TRIA) and floods (NFIP), underscore the need for public support when private markets fail. In those circumstances, a public-private partnership is essential to support the economy. PRIA is positive, forward-thinking legislation that Congress needs to pass.”
- A RIMS survey recently found that pandemic risk is excluded or restricted on most lines of commercial property-casualty insurance, and where coverage is available, it is often cost-prohibitive without government support.
- PRIA would require insurers to offer coverage in return for a government indemnification of 95% of insured losses arising from any future pandemic that results in a public health emergency. Unlike TRIA, there is no “insurer deductible” nor would there be any post-event recoupment, although the program would begin to pay for itself after an initial “economic recovery period.”
- The bill would ensure availability of pandemic coverage while fostering the development of private reinsurance and capital market alternatives to reduce taxpayer exposure going forward.
- The Maloney bill also addresses the unavailability of coverage in other crucial lines of insurance such as event cancellation, TV and film production insurance and liability coverage for essential services.
- The bill is similar to current proposals advanced by the insurance industry that would establish a parametric program for non-damage business interruption (NDBI) losses, which recognize rapid claims payment and minimal transaction costs are critical when the aggregation of losses are so high as in a pandemic. The bill also would provide a pooling alternative for insurers that do not wish to underwrite primary NDBI coverage.
- The Roundtable’s DeBoer noted, “When private insurance markets cannot provide the coverage needed to protect jobs and help businesses meet their obligations in the event of a government mandated shutdown, those exposed gaps in business continuity insurance coverage can only be filled by a federally-backstopped mechanism. A TRIA-style program for pandemic risk can protect the American economy with the coverage it needs to minimize the economic impact of pandemic-related shutdowns and aid economic recovery.”
- Closures and shutdowns caused by COVID-19 have significantly impacted the employees and operations of businesses across the country. The Business Continuity Coalition – representing the restaurant, entertainment, professional sports, hospitality, gaming, retail, communications, broadcasting and real estate industries, employing millions of people – encourages policymakers to develop a public-private partnership that will protect American jobs and limit future economic damage from pandemics and other national emergencies that cause business interruptions.
- The Business Continuity Coalition has also posted a collection of statements of support for the PRIA legislation.
- “The Roundtable stands with its partners in the BCC in support of PRIA’s eventual enactment. We commend the efforts of Rep. Maloney and look forward to working with policymakers as the legislation moves forward,” DeBoer added.
The legislative outlook for PRIA will be among the many issues discussed at the next meeting of The Roundtable’s Real Estate Capital Policy Advisory Committee (RECPAC) on Nov. 9 in New York City.
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A seven-year reauthorization of the Terrorism Risk Insurance Act (TRIA) was approved this week by the House and Senate as part of a year-end funding bill (H.R. 1865). The provision reauthorizes TRIA through 2027, a year ahead of its slated sunset date of Dec. 31, 2020. (TRIA provisions on pages 1233–1236 of the year-end funding legislation).
The measure is part of a massive $1.4 trillion congressional spending deal to fund the government until the end of the fiscal year – Sept. 20, 2020. President Trump is expected to sign two separate funding bills to keep the government open past midnight tonight.
Roundtable Chair Debra Cafaro (Ventas, Inc.) stated, “The Real Estate Roundtable is pleased that TRIA will be extended until 2027. This federal terrorism insurance backstop was enacted following 9-11 and has been extended and reformed several times since. We cannot overstate the valuable safety and liquidity that the program brings to the US economy, businesses of all manner and commercial real estate markets.”
A long-term, “clean” reauthorization of TRIA, well in advance of its expiration, has been a top policy goal of The Roundtable. This was achieved a full year ahead of schedule. (Roundtable background on TRIA)
In addition to TRIA, the omnibus appropriations bill (H.R. 1865) contains several other positive measures affecting real estate. The tax and funding extensions include:
- The EB-5 Regional Center Program, which provides visas to foreign nationals who pool their investments in regional centers to finance U.S. economic development projects. The program would be extended until Sept. 2020. Department of Homeland Security (DHS) regulations that took effect in November presently govern key elements of the EB-5 program regarding investment levels and Targeted Employment Area (TEA) definitions.
- The National Flood Insurance Program. Without the extension, the program’s borrowing authority would have been reduced from $30.4 billion to $1 billion. The program would also be extended until Sept. 2020. (BGov and CQ, Dec. 20)
- Tax measures would be extended through the end of 2020. They include (1) the section 179D tax deduction for energy efficient commercial building property; (2) the section 25C tax credit for energy efficient improvements to principal residences; (3) the section 45L tax credit for construction of new energy efficient homes; (4) the tax exclusion for home mortgage debt forgiveness; (5) the tax deduction for mortgage insurance premiums; and (6) the New Markets Tax Credit;
- The Brand USA program would be extended through fiscal year 2027. Brand USA promotes travel to the U.S. through a public-private partnership that is funded through private-sector donations and funds collected from foreign visitors to the U.S.
This week also saw the House pass legislation (H.R. 5377) that would temporarily raise and then eliminate for two years the $10,000 cap on state and local tax (SALT) deductions, which would be paid for by permanently raising the top individual tax rate to 39.6%. This “messaging” bill is unlikely to be taken up in the GOP-controlled Senate and President Trump has also threatened to veto it.
After a flurry of year-end policymaking amid impeachment proceedings, both chambers of Congress recessed today and will return in early January.
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A seven-year reauthorization of the Terrorism Risk Insurance Act (TRIA) passed the House this week (H.R. 4634) as the Senate Banking Committee advanced a similar bill (S. 2877). Both bills would reauthorize the Terrorism Risk Insurance Program (TRIP) through December 31, 2027.
- The House passed the Terrorism Risk Insurance Program Reauthorization Act of 2019 (H.R. 4634) on Nov. 18 by a vote of 385–22. The measure was previously passed unanimously (57-0) by the House Financial Services Committee on Oct. 31. (Roundtable Weekly, Nov. 1)
- House Financial Services Committee Chairwoman Maxine Waters (D-CA) stated on the House floor before the chamber vote, “Congress [originally] passed TRIA to ensure that terrorism risk insurance coverage would remain available and affordable. And since that time the program has been effective at doing just that … Treasury data also demonstrates that TRIA is important across America and not just in densely populated urban areas. In fact, they take up rate is higher in the Midwest than it is in the Northeast. I would urge all my colleagues to support this important legislation.”
- In the Senate, a seven-year extension of the Terrorism Risk Insurance Program (TRIP) was advanced by the Banking Committee on Nov. 20. The reauthorization bill (S. 2877) was introduced last week by Sens. Thom Tillis (R-NC) and Tina Smith (D-MN), along with 13 bipartisan cosponsors. The bill now goes to the full Senate, which has not yet scheduled a vote.
- Chairman Crapo commented during the markup on the importance of TRIP which is scheduled to expire at the end of 2020. “Since its establishment in 2002, the Program has been reauthorized three different times, in 2005, 2007 and 2015. Given the Program’s importance to our nation’s economy, regardless of region or state, and the broad bipartisan support in both the House and Senate, it makes sense for the Banking Committee to consider the Program’s reauthorization now,” Crapo said.
- The similar approach of the House and Senate bills increases the prospect that final passage of a TRIA reauthorization may be included as part of an end-of-the-year funding bill, although prospects of that outcome are uncertain.
Roundtable Chair Debra Cafaro (Chairman and Chief Executive Offer, Ventas Inc.) commented, “The Real Estate Roundtable strongly supports a seven-year reauthorization of TRIA to ensure that terrorism risk insurance coverage will remain available and affordable . The Roundtable will continue to work with Senate and House policymakers and with the Coalition to Insure Against Terrorism to encourage enactment of this top legislative policy priority as soon as possible to add certainty to the marketplace and reassure stakeholders across many industries who rely on the availability of terrorism insurance coverage for their businesses. Passage will promote the creation of jobs, enable new projects to proceed, and protect state pension fund investments and lender portfolios.”
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A bipartisan, seven-year TRIA reauthorization bill – the Terrorism Risk Insurance Program Reauthorization Act of 2019 (S. 2877) – was introduced in the Senate yesterday by Thom Tillis (R-NC) along with 15 original cosponsors – including Senate Banking Committee Chairman Mike Crapo (R-ID) and Ranking Member Sherrod Brown (D-OH).
- The Senate bill is similar to a House measure that would reauthorize the Terrorism Risk Insurance Program through December 31, 2027. (Roundtable Weekly, Nov. 1).
- Both bills preserve taxpayer reforms included in the Terrorism Risk Insurance Program Reauthorization Act of 2015 and would also :
* Align the timing of mandatory recoupment from private insurers by the federal government in the event of an act of terrorism covered by the Terrorism Risk Insurance Program with the seven-year extension of the Program;
* Direct the Treasury Department in its biennial report on the Terrorism Risk Insurance Program and its effectiveness to include an evaluation of the availability and affordability of terrorism risk insurance, including specifically for places of worship; and
* Direct the Government Accountability Office to analyze and address, and report on, the vulnerabilities and potential costs of cyber terrorism, adequacy of coverage under the Program, and to make recommendations for future legislative changes to address evolving cyber terrorism risks.
- Roundtable Chair Debra Cafaro (Chairman and Chief Executive Offer, Ventas Inc.) said, “The Roundtable is encouraged to see such positive momentum on TRIA legislation in both chambers of Congress. We will continue to work with policymakers on both sides of the aisle to communicate how this essential long-term reauthorization contributes to economic growth; avoids disruption to real estate capital flows; and ensures businesses of all types nationwide can obtain terrorism insurance well before the program’s scheduled expiration at the end of 2020.”
- The Senate Banking Committee will markup the bill on Wednesday, Nov. 20. While amendments are expected to be offered, the committee is expected to approve the bill on a bi-partisan basis.
- In the House, Majority Leader Steny Hoyer today addressed legislation that will be considered next week in a leadership colloquy on the House floor. “Madam Speaker, we will consider several bills on suspension of the rules including H.R. 4634 – the Terrorism Risk Insurance Program Reauthorization Act – a very significant and very bipartisan bill,” Hoyer said.
- Bills considered under suspension of rules are subject a 40-minute limit on debate; a prohibition against floor amendments; and a two-thirds vote of those present and voting for passage.
The House Financial Services Committee on October 31 passed (57-0) the Terrorism Risk Insurance Program Reauthorization Act of 2019 (H.R. 4634). In addition to extending TRIA for seven years, H.R. 4634 would also require a study on the cyber terrorism market and expand an ongoing study to also determine the availability and affordability of TRIA coverage for places of worship. (Roundtable Weekly, Nov. 1).
The Roundtable expects H.R. 4634 will pass the House next week as S. 2877 advances beyond the Senate Banking Committee.
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The House Financial Services Committee yesterday unanimously (57-0) passed the Terrorism Risk Insurance Program Reauthorization Act of 2019 (H.R. 4634) – a “clean” seven-year extension of the Terrorism Risk Insurance Act (TRIA), which is a top policy priority of The Real Estate Roundtable.
- The bipartisan House compromise bill also requires two studies: a U.S. Government Accountability Office (GAO) study on the cyber terrorism market and a biennial Treasury reporting on the ‘availability and affordability’ of TRIA coverage for places of worship.
- Committee Chairwoman Maxine Waters (D-CA), above, in her opening committee markup statement noted, “This bipartisan bill provides a simple long-term reauthorization of the Terrorism Risk Insurance Program. Without a reauthorization, the program would expire at the end of 2020, but we could experience the harmful effects of a failure to reauthorize as soon as January of 2020. I am very pleased that I have reached a bipartisan compromise with Ranking Member [Patrick] McHenry [R-NC] on this issue for a seven-year reauthorization of this very important program.” (Committee Markup documents and video, Oct 29)
- The Coalition to Insure Against Terrorrism (CIAT), which includes The Real Estate Roundtable, wrote to the committee’s leadership on Tuesday in support of H.R. 4634. (CIAT letter, Oct. 29)
- TRIA, originally passed in 2002, has been 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 was the focus of a discussion during The Roundtable’s Oct. 30 Fall Meeting with American Property and Casualty Insurance Association President and CEO David Sampson. The discussion emphasized that a long-term, clean TRIA reauthorization by Congress is needed as soon as possible to avoid market dislocation and provide certainty to commercial real estate policy holders who are actively renewing their coverage.
- Roundtable President and CEO Jeffrey DeBoer noted during an October 1 podcast episode of Through The Noise, “Businesses and facilities of all types need to see the terrorism risk insurance program extended. This need applies to hospitals, all commercial real estate buildings, educational facilities, sports facilities, NASCAR and theme parks, and really any place where commercial facilities host large numbers of people.”
The next step toward TRIA reauthorization is a floor vote in the House, which may occur before year-end.
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