Advocates push for permanent terrorism insurance program

For the third time since 2001, commercial real estate and insurance leaders are lobbying Congress for federal participation in a program to keep terrorism risk insurance affordable.

“We believe that the time has come for Congress to enact a long-term solution for insuring against terror — one that is either permanent or at least guaranteed to be in place until Congress declares that terrorism is no longer a risk,” Arthur Coppola, president and CEO of The Macerich Co., told U.S. Senate Banking Committee members on Wednesday.

Terrorism insurance is vital for the commercial real estate industry because rating agencies require that loans rolled into commercial mortgage-backed securities retain the insurance on underlying properties.

The Terrorism Risk Insurance Act (TRIA) provided federal reinsurance as a backstop that enabled insurers to cover acts of terrorism without charging exorbitant premiums. The act was extended at the end of 2005, thanks to lobbying efforts by the Coalition to Insure Against Terrorism and other industry groups. Now those same groups are pushing for a permanent program to take the place of TRIA, which expires at the end of this year.

“At least 14 other major industrial nations have recognized that the private markets are unable to effectively manage terrorism risk and have adopted permanent national programs,” he said. “The U.S. market is no different. Terrorism risk is a national problem that requires a federal solution.” Coppola testified on behalf of the Coalition to Insure Against Terrorism.

The Senate Banking Committee’s chairman, Sen. Christopher Dodd, D-Conn., has been a TRIA advocate since the act’s inception and is known to regard terrorism as uninsurable by private-sector insurers without assistance. At the hearing, Dodd expressed a sense of urgency in establishing a permanent fix.

“I don’t believe we should continue to extend the program for short-term periods,” Dodd said. “Making it permanent is something that we must do to meet the long-term security of our people and to ensure the stability of the markets.”

Some committee members, however, believe TRIA has served its purpose as an interim stopgap and should be allowed to expire. One of those is Sen. Richard Shelby, R-Ala., who said the private markets will come up with a way to provide terrorism insurance if TRIA is allowed to expire. “In the long run, the most durable solutions will come from the private markets, which will innovate,” Shelby said.

Charles Clarke, vice chairman of the Travelers Insurance Co., made the case for a continued public-private mechanism for management of terrorism risk that increases federal financial participation in the event of a chemical, nuclear, biological, and radiological (CNBR) attack. Clarke testified on behalf of the American Insurance Association, which contends the private markets cannot insure against terrorism without assistance.

“Characteristics that make terrorism an uninsurable risk remain as strong today as they were immediately following September 11, 2001,” Clarke said. “Most experts agree that it is not a matter of if, but when, another catastrophic attack will occur on U.S. soil. A continued, vibrant federal terrorism risk insurance program therefore remains vital to the national security and economic well-being of our nation for the foreseeable future.”

Clarke also outlined approaches for developing an effective and fiscally efficient federal program for the public-private management of terrorism risk. These include keeping the existing TRIEA backstop in place for conventional terrorism risk, expanding the federal government’s financial role in managing CNBR terrorism risk, eliminating the artificial distinction between foreign and domestic terrorism, reviewing the program’s current $100 million trigger to better help small and mid-sized insurers, and preempting burdensome state rate and form regulation with respect to terrorism insurance rates and policy forms.

“Finally, we strongly support Chairman Dodd’s view that the program should be made permanent, or at least remain in place until the U.S. has won the war on terrorism — our ultimate goal,” Clarke said.

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