A Big Day for TRIA

WASHINGTON, DC—Two developments this week reminded the commercial real estate industry-indeed just about every industry and individual-of a fact we'd all love to forget: terrorism insurance is seen as a necessity in a post-9-11 world.

One development was the release of a RAND Corp. study that found that eliminating the Terrorism Risk Insurance Act could increase federal spending by as much as $7 billion in the event of another terrorist attack along the lines of 9-11. Perhaps of greater interest to building owners, the study also confirmed the general perception that TRIA made commercial terrorism insurance generally available at rates that are viewed as reasonable and that, as one widely-cited industry report has found, the terrorism insurance coverage market is "functioning solely on the basis of TRIA being in place."

The second development was a bill put forward in the Senate by Charles E. Schumer (D-NY), Dean Heller (R-NV), Mark Kirk (R-IL) and Jack Reed (D-RI) to extend TRIA, which is scheduled to sunset at the end of the year, once again, this time for seven years.

The measure will include a few changes to the current program that will be phased in over five years: The proposed legislation would increase an insurers' co-pay from 15 to 20%, with the government still covering 80% of each company's additional losses. This increase would be phased in incrementally over five years. The proposed legislation would raise the mandatory recoupment threshold to $37.5 billion, so that when the insurance industry's aggregate uncompensated losses are below $37.5 billion the government will be required to recoup its TRIA payments outlaid to insurers.

Chances are high this measure will pass the Senate, David Johnson, CEO of Strategic Vision, tells GlobeSt.com, in large part because it is an election year. "This is something that businesses want," he says.

There is also a growing sense even among some-but not all-conservatives that terrorism coverage is not a program that can be provided by the private sector without some assistance from the government, he adds.

When TRIA first passed, it was understood it would be a transitional program to give the private insurance industry time to price coverage that the market could afford and that compensated carriers for the potential risk. That never happened; indeed buildings seen as probable targets for attacks were deemed uninsurable. Hence TRIA was extended at the end of 2005, when it was first supposed to sunset, then in 2007 and now, it is hoped, in 2014.

Now it appears that an alternative view to the free markets approach is gaining currency in Congress: namely, that terrorism risk is incompatible with private sector insurance because it is statistically unpredictable and the losses could easily bankrupt the entire industry.

The commercial real estate industry is lining up behind this view as it urges Congress to push TRIA across the finish line.

"TRIA is one government program that works, and, as the RAND study shows it would actually save the government money if we have another 9-11," Real Estate Roundtable CEO Jeff DeBoer tells GlobeSt.com.

"TRIA will not stop terror from occurring. But, it does allow our businesses to get financing in the face of the ongoing terrorist threat, and it would allow our economy to recover more quickly, and in a more orderly way, should terrorism again occur in the US."