Legislation has been introduced that would extend the U.S. government’s Terrorism Risk Insurance Act (TRIA) through 2007.
While New York City real estate professionals are pushing for the renewal of the legislation, initially passed by Congress in 2002, they say there are also still lingering questions in place that must be addressed.
TRIA calls for the federal government to share in the cost of a foreign terrorist attack that produces at least $5 million in insured losses. The act is slated to expire in 2005.
Last month, four members of Congress including Sue Kelly (R-NY) introduced H.R. 4634, which would extend the act another two years.
The new legislation comes after the U.S. Treasury Department announced the week before that it would extend a provision of the current legislation that requires insurance firms to offer terrorism coverage to commercial clients on the same basis as other risks until the end of 2005.
The provision was set to expire on Dec. 31, and the Treasury had until Sept. 1 to make a decision, but decided to act ahead of time to help create a sense of certainty and help insurers plan ahead.
By most accounts, American businesses would find it exceedingly difficult to obtain insurance against losses from future terrorism-related events without TRIA in place to help share the costs of an attack -which, in turn, could have dire ramifications for the U.S. economy.
In the aftermath of Sept. 11, many insurers were unwilling to provide terrorism coverage to businesses. The law made terrorism coverage available, and prices initially skyrocketed, before reaching an equilibrium around early 2003.
A sign of the stability brought about by the federal program was shown in a recent study by insurance broker Marsh Inc., which found that the percentage of commercial real estate owners who purchased terrorism insurance rose in the first quarter to the highest level since the enactment of the act in 2002.
The study found that 52 percent of commercial real estate owners purchased the insurance in the first quarter, up from 28.1 percent in the fourth quarter of 2003.
But Mark Edelstein, a partner who practices real estate law with Morrison & Foerster LLP in New York, said some lingering issues remain with the current legislation.
“One of the issues coming up on a lot of recent deals is whether the insurance obtainable only covers foreign terrorism,” he said. “If you look closely, the federal stuff only deals with foreign nationals.”
“The question is ‘why is the federal government distinguishing?'” Edelstein said. “We don’t really care whether it’s the Oklahoma bomber, or someone from another country.”
As a result, said Edelstein, “lenders are asking, ‘are you naked?'” – in other words, not adequately covered by insurance.
Herb Feldman, CEO of Alpha Risk Management, an independent insurance consulting firm in Great Neck, NY, not engaged in the sale of insurance, said it’s necessary to buy coverage against domestic terrorism separately.
“Lenders are requiring it,” he said. “The costs are much lower, and there is more availability of this type of coverage.”
Feldman also pointed out the importance of extending TRIA through 2007.
There are jobs at stake,” he said. “When there was a 14-month plus hiatus before [when coverage wasn’t available], there were a lot of construction jobs that shut down.”