Terrorism Risk Insurance Program Set To Expire, Leaving Building Owners To Worry

In January 2013, the real estate industry began in earnest to educate Congress on the need to act quickly to extend the federal terrorism risk insurance program set …

In January 2013, the real estate industry began in earnest to educate Congress on the need to act quickly to extend the federal terrorism risk insurance program set to expire at the end of 2014. Now, midway through the 2014 legislative session, we still have no concrete timetable for action. With the primaries already well underway and the midterm elections fast approaching, the legislative work days remaining in the session are quickly dwindling. Making the situation even worse, the rhetoric on Capitol Hill has also shifted to campaign-mode, with “winning” trumping consensus-building for members of both political parties.

The program, commonly known as “TRIA” after the Terrorism Risk Insurance Act of 2002, was enacted following the 9/11 terrorist attack, when owners of commercial properties were advised that their policies would not be renewed or that their new policies would exclude terror/war risks.  Without adequate insurance, it is difficult, if not impossible, to operate or acquire properties, refinance loans or sell commercial mortgage-backed securities.

From the commercial real estate industry’s perspective, the program has been a success. In the years following 2002, terrorism coverage became readily available at reasonable costs and with terms. At the time the legislation was first enacted, TRIA was intended to be a short-term backstop program that would cease to be needed once the insurance and reinsurance industries could accurately predict and price the risk of terrorism. However, the threat of terrorism remains strong, and there is little that policyholders can do to mitigate the risk.

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BOMA believes that TRIA’s expiration will cause an immediate and significant decrease of the available supply of terrorism insurance. This is likely to make it difficult, if not impossible, for the market to meet the potential demand for risk transfer capacity. Already, policyholders are receiving notices from insurers that the terrorism portion of their policy will sunset at the end of the year. Risk managers are scrambling to cobble together adequate insurance through multiple insurers and insurance brokers. Meanwhile, building prices are rising and the complexity of the deals has skyrocketed. Congress’ inaction is already causing marketplace disruption.

When BOMA and our colleagues in the Coalition to Insure Against Terrorism (CIAT), a broad coalition of policyholders, began conversations with members of Congress early last year, we initially received positive feedback that our message was being heard and that Congress understood our urgency. However, as time passes, so does our optimism. While many on the Democratic side of the aisle support a straightforward extension of the current program, conservative Republicans are looking for a way in to include more taxpayer protections and avoid a permanent or long-term government program.

Throughout this month, watch for the rhetoric to heat up as both the Senate and the House are putting ideas about what to do about TRIA on paper. For BOMA, it can’t come soon enough. Our message to Congress is clear: Act now. We don’t want to see this issue left to a lame duck Congress, or worse, left for the new Congress to convene in 2015 after the expiration of the program.

Karen Penafiel is the vice president of advocacy, codes and standards at BOMA International, based in Washington, D.C.

This article was republished with permission from National Real Estate Investor.


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