The Real Deal New York

Fade out of terrorism insurance will jack up property costs

Scaling back of federal program seen hitting high-risk commercial markets like New York

May 13, 2014 02:50PM

dan-glaser

Marsh & McLennan CEO Dan Glaser

The possible scaling back — or elimination — of the Terrorism Risk Insurance Program Reauthorization Act at the end of the year could lead to higher commercial real estate costs.

The law, which was first signed in the wake of the 9/11 terrorist attacks, created a government-backed insurance facility for businesses that suffered losses after such an event. The law was extended in 2005 and in 2007. The assistance could be scaled back substantially in the next renewal, experts say. Such a move would have the biggest impact in high-risk markets, such as New York and Boston. Rating firm Standard & Poor’s has predicted that insurance costs will rise as the number of insurers that offer terrorism insurance will decrease.

“Demand for terrorism insurance remains strong and the existence of TRIPRA plays a key role in making coverage available and affordable,” a report issued last month from Marsh & McLennan, a risk management firm, stated.

Median rates for terrorism insurance already vary. For companies with a total insured value lower than $100 million, median rates were $51 per million. For those companies who insured more than $1 billion, median rates were $18 per million, according to the New York Observer. Those premiums will likely skyrocket, however, if the federal backstop is canceled.

Construction companies had the highest terrorism insurance costs last year, with a median cost of $66 per million of insured value. Medical facilities had the lowest cost, with a median price of $14 per million of insured value. [NYO] — Claire Moses

MENU