Terrorism Risk Insurance Vital to Commercial Real Estate Market
September 11, 2012
NAR’s 2012 Commercial Committee Vice Chair Linda St. Peter spoke before the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity on the 11th anniversary of the Sept. 11 terrorist attacks about the future of the Terrorism Risk Insurance Act. TRIA is a federal terrorism insurance program enacted in 2002 that establishes a risk-sharing partnership between the government, private insurers, and commercial policyholders.
“Terrorism continues to be an unpredictable threat to our nation, and as the leading advocate for property owners, REALTORS® know that American businesses must have adequate terrorism risk coverage,” said St. Peter, operations manager for Prudential Connecticut Realty in Wallingford, Conn. “The federal government’s terrorism risk insurance program helps protect the nation’s business sector by ensuring that adequate insurance coverage is available. That coverage is critical to helping maintain a strong and vital commercial real estate market.”
In her testimony, St. Peter said that after the Sept. 11 attacks, private insurers backed out of the terrorism insurance marketplace, prompting Congress to enact TRIA, a federal insurance backstop that allows the federal government and private insurance companies to share losses in the event of a major terrorist attack. TRIA helped stabilize commercial real estate markets by making terrorism coverage available and more affordable over time. Congress has reauthorized the program twice; it currently expires on December 31, 2014.
While the commercial real estate finance market is starting to show signs of life, any disruption in the availability of terrorism insurance would have serious consequences on commercial real estate’s fragile road to recovery. According to industry sources, 84 percent of outstanding commercial mortgage balances require terrorism insurance.
Given that primary insurers remain largely averse to exposing themselves to potentially catastrophic terrorism losses, there are concerns about TRIA’s uncertain future and the potential unavailability of terrorism risk insurance at the end of 2014. “Any uncertainty could cause insurance prices to fluctuate or prompt insurers to drop terrorism coverage, causing commercial loans to go into technical default,” said St. Peter.
To that end, NAR supports the continued availability and affordability of terrorism insurance coverage because of its importance to commercial policyholders and the U.S. economy, and believes TRIA should be maintained beyond its current 2014 expiration date.
“REALTORS® are concerned that TRIA’s potential sunset will create a spike in terrorism coverage premiums or make coverage unavailable in many markets; therefore, we believe the time has come for Congress to enact a long-term solution for insuring against terrorism – one that provides the needed market certainty to allow for continued economic growth and development,” said St. Peter. “Since the reinsurance industry has not yet been able to develop a long-term solution that would eliminate the need for the federal government’s terrorism risk insurance program, extending TRIA beyond its current 2014 authorization will help maintain a strong commercial real estate market and the health of the nation’s economy.”
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Updated: November 13, 2019