Thank you for sharing!

Your article was successfully shared with the contacts you provided.

Erika Morphy is co-editor of Debt and Equity Journal.

Washington, DC—Commercial property insurance policyholders are generally satisfied with proposed House legislation expanding the federal program to assist the insurance industry in the event of a major terrorist attack. In a vote late last month, the House approved the Terrorism Risk Insurance Revision and Extension Act of 2007, which extends the terrorism risk insurance program for 15 years. It also adds group life insurance, broadens the federal backstop to include domestic terrorism as well as support for damages caused by nuclear, biological, chemical or radiological attacks and adjusts the damage levels triggering coverage under the act.

However, if these additional measures actually become law, there could be dramatic increases in insurance premiums for conventional terrorism attacks. Worse, some industry experts say, if insurance against perils like nuclear attacks becomes available on the private market, lenders will likely insist on such coverage in their underwriting–and there are concerns such coverage could be prohibitively expensive.

“I think the law of unintended consequences will kick in,” says Aaron Davis, director of national property brokerage at Aon Corp., “because this type of coverage won’t be subject to pricing controls. In addition, we think its inclusion could also be problematic because it could affect conventional terrorism pricing and capacity, making the latter more expensive and scarce.” While nuclear, biological and chemical threats are real and something for which the insurance and real estate industries must prepare, the immediate risks are conventional attacks, he says.

Another question mark, says Howard Mills, chief advisor with Deloitte & Touche USA LLP’s insurance industry group and former superintendent of the New York State Insurance Dept., are the proposed caps on damages the insurance companies would have to pay. “If the final version includes support for nuclear, biological, chemical or radiological attacks, but leaves more of the conventional terrorism to private insurance with the federal backstop in place–that is, if the attachment point is higher than now anticipated–then insurance prices will undoubtedly rise in the private sector,” he predicts.

Most people watching the issue, including Davis and Mills, believe the final bill will represent a compromise. Both the Senate and President Bush have expressed reservations about the House bill.

“The Administration has voiced objections, but there are sufficient votes to override a veto,” Mills says. However, compromise is expected on the more controversial proposals, if only to ensure a new law is in place when the extension in the current one sunsets at the end of the year. “We’ll know more what it looks like in about a month,” Mills says.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.