55SOCIETY OF INDUSTRIAL AND OFFICE REALTORS ®
On April 10, 2014, Senator Chuck Schumer (D-NY) introduced S.2244, a bill to reauthorize the “Terrorism Risk Insurance Act of 2002” (TRIA), which expires at the
end of 2014. Lead cosponsors of this bipartisan bill are Senators
Heller (R-NV), Reed (D-RI), Kirk (R-IL), Murphy (D-CT) and
Johanns (R-NE). This bill was marked up and unanimously
approved by the Senate Banking Committee in early June. This
follows hearings in both the Senate Banking Committee and the
House Financial Services Committee; several reauthorization
bills have already been introduced in the House. NAR has been
active in the push to renew the program, weighing in with letters
of support, testifying at a House Financial Services hearing on
the topic, and participating in the Coalition to Insure Against
Terrorism (CIAT), which has been instrumental in educating
members of Congress on the importance of reauthorizing the law.
WHAT TRIA DOES
TRIA was passed in the wake of the September 11 terrorist attacks,
when private insurers backed out of the terrorism insurance
market and coverage was difficult, if not impossible, to find. This
caused a huge market disruption, halted construction projects and
development deals, and caused an estimated 300,000 job losses.
TRIA created a federal reinsurance risk-sharing program, allowing
private terrorism risk insurance coverage to remain commercially
available, at virtually no cost to taxpayers. It accomplished this
by setting a federal “trigger” (currently $100 million in aggregate
losses) after which, the federal government would pay up to 85
percent of costs above an insurer’s deductible in the case of losses
due to a catastrophic terrorist attack. A recoupment provision
mandates that any money from the government up to $27.5 billion
dollars over the course of a year be repaid by insurers, and gives
the Treasury authority to require further recoupment of losses up
to $100 billion.
By providing a “backstop” for private insurers, TRIA allows more
insurers, including smaller insurers, to remain in the market, and
keeps the cost of the coverage affordable. Terrorism coverage
provides economic security in the event of a catastrophic terrorist
attack, and protects taxpayers, as there would be no need for
Congress to pass an emergency appropriations bill to fund the
recovery efforts – TRIA already takes care of that.
TRIA’S IMPAC T ON COMMERCIAL REAL ESTATE
Many lenders and investors require terrorism insurance to finance
construction of large projects, especially in “high risk” areas.
If the program expires without anything to replace it, insurers
would likely exclude it from property coverage to manage risk
aggregations in concentrated areas. Terrorism insurance has also
become an important structural protection in the Commercial
Mortgage Backed Securities (CMBS) market; without it,
some firms may decline to rate or cap their ratings on CMBS
transactions, causing CMBS borrowers to face the threat of
default and bond downgrades. Finally, TRIA has a huge impact on
workers’ compensation insurance, since employers are required
by law to have this, and cannot exclude specific perils from the
coverage, such as terrorist attacks. Thus, workers’ compensation
insurers are especially vulnerable to large losses in the event of
a terrorist attack, and might withdraw from the market without
TRIA, especially in higher risk industries and regions. This could
cause employers to hire fewer employees, reduce their office
space, or move to lower-risk areas where coverage is available.
NEXT STEPS
While it may seem early to be concerned about TRIA’s expiration,
the lack of a reauthorization measure is already affecting the
insurance market. Policies renewing today that extend past 2014
may include “springing exclusions,” which state that if TRIA is
not renewed, their terrorism insurance coverage will expire on
that date as well. As the expiration approaches, the uncertainty of
renewal may cause some providers to stop offering it altogether,
as occurred in 2005 and 2007, the previous two times the program
was reauthorized within days of its expiration).
The good news is that following the introduction of the Senate
bill, it is likely that the House Financial Services Committee will
release its own draft. House Financial Services Chairman Jeb
Hensarling (R-TX) has indicated that passing a reauthorization
bill is one of his top priorities for the spring. House leadership has
also been vocal in their support for reauthorization. Introduction
and markup of a House Financial Services is predicted for June,
with the possibility—though no guarantee—of bill passage this
summer. NAR will closely analyze all legislation and continue
to be a leader in the push to reauthorize the program in a timely
manner.
REAUTHORIZING THE TERRORISM
RISK INSURANCE ACT
LegislativeUpdate
ABOUT THE AUTHOR
ERIN STACKLEY monitors
and analyzes federal legislative
developments affecting the field of
commercial real estate, and lobbies
the U.S. Congress to make sure that
their interests are addressed. Prior
to joining NAR, she worked for the
House of Representatives and had
a legal fellowship with the National
Federation of Independent
Business (NFIB).
