WASHINGTON, DC-If US Department of the Treasury John W. Snow did not make clear the department’s stance on the renewal of the Terrorism Risk Insurance Act of 2002 in his June 30 report, “Assessment: The Terrorism Risk Insurance Act of 2002,” he has done so now. Yesterday, Snow testified before the US House of Representatives Committee on Financial Services and reiterated both the Treasury Department’s and the White House’s objection to the legislation’s renewal. TRIA is scheduled to expire in less than six months on Dec. 31.
“The findings from the surveys of insurers and policyholders point to the success of TRIA in achieving its short-term goals,” Snow told the panel of US representatives, referring to studies involving commercial property and casualty insurers Treasury relied upon to complete the aforementioned report. “While we don’t ascribe a direct causal effect to TRIA, we note that insurer financial strength has improved substantially over this period. More generally, TRIA allowed both insurers and policyholders time to adjust to the post-Sept. 11 view of terrorism risk.” Snow indicated that, as per the survey, about 66% of commercial property and casualty insurance policies written in 2004 included terrorism insurance coverage as opposed to 60% in 2002.
With regard to the impact that the failure to extend TRIA will have on the commercial real estate industry, however, many groups oppose Treasury’s position and advocate a limited renewal of the legislation to allow time to craft a long-term solution; pending bills in the House and the Senate propose a two-year renewal. “Last week’s horrific events in London are a stark reminder about the evolving nature of terrorist activity around the world, and the increasing difficulty that private insurance markets face in trying to quantify and price the risk of terrorism–let alone bear the resulting devastation,” Real Estate Roundtable president and CEO Jeffrey D. DeBoer tells GlobeSt.com. “This week’s hearings are an important step in the legislative process and, once concluded, should pave the way for the committees to focus on the details of how a future terrorism insurance program should look.”
The Mortgage Bankers Association has also been eagerly advocating a renewal. “The failure to extend TRIA in the short term, to permit more time for the development of a thoughtful long term solution, could result in significant breakdowns in the commercial real estate finance industry and other markets,” MBA chairman Michael F. Petrie wrote in a letter to the chairman and ranking member of the House Financial Services Committee yesterday.
While Treasury and the White House are standing firm–they are also backed by such groups as the Consumer Federation of America–they are open to considering approving a significantly altered version of TRIA. “It is the Administration’s view that extension of the program should recognize the temporary nature of the program, the rapid expansion of private market development, particularly for insurers and reinsurers to grow capacity, and the need to significantly reduce taxpayer exposure,” Snow said. “The Administration would accept an extension only if it includes a significant increase to $500 million of the event size that triggers coverage, increases the dollar deductibles and percentage co-payments, and eliminates from the program certain lines of insurance.”
Snow also referred to the recent terrorist bombings in London. “The events of the past week in London have been an unwelcome reminder that the risk of terrorism is real and that the war on terrorism is one that will be waged over a long period of time on many fronts,” he said. ” Some believe the fact that terrorism risk is real suggests the need for a permanent and obtrusive federal role in the market for terrorism risk insurance. I agree that the risk of terrorism is likely to remain a part of our lives for some time to come, but that is precisely why the federal government needs to encourage the development of the most creative and cost effective means of covering terrorism risks.”