Skip navigation
Retail Traffic

Terror Aid Extended

Less than two weeks before the 2002 Terrorism Risk Insurance Act (TRIA) was set to expire, Congress ended months of on-again, off-again negotiations and passed a two-year extension and President Bush quickly signed the bill into law. Real estate owners are relieved that the deal got done under the wire, but aren't thrilled about the higher costs they will likely have to pay for insurance premiums. And insurers aren't happy that they will be liable for a much greater share of the costs stemming from any attacks.

Overall, however, “the industry is obviously happy and grateful,” says Robert Hartwig, senior vice president and chief economist of the Insurance Information Institute. “It backs the most important lines — worker compensation and commercial property.”

Owners of many properties faced the prospect of either seeing their terror insurance dropped or face exorbitant price hikes. Loss of terror insurance could have triggered a series of defaults as some lenders mandate terrorism insurance as part of loan agreements.

But owners will likely face higher insurance costs then they've gotten used to, partly because Congress is curtailing how much the federal government will cover in the event of terrorism. Under TRIA, the government pledged to provide a backstop to insurers on damages of more than $5 million. But in the extension, the level at which TRIA kicks in will rise to $50 million in 2006 and $100 million in 2007. Individual insurer deductibles will also increase from the current 15 percent to 17.5 percent in 2006 and 20 percent in 2007. The last change is that the extension calls for insurers to pay back federal aid. The bill calls for insurers to pay back 25 percent of any aid received in 2006 and 27.5 percent in 2007.

“The bill is not substantially different in how we expected it to come out in that the government backed away involvement to extent that it could,” Hartwig says. “But if there is a failure in all of this, it is in that insurers and their partners, including real estate interests, were unable to make the government realize that large-scale terrorism losses are not insurable. They are acts of war.”

More ominous for insurance companies are government plans, as expressed in the bill, to commission a study on the long-term availability and affordability of terror insurance, with a goal of at some point mandating the insurance industry provide coverage without a backstop. The study will be presented to Congress by Sept. 30, 2006.

Insurance and real estate industry lobbyists pledged to return next year to push for a permanent backstop.

Hide comments


  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.