Terrorism Insurance

The Issue

Prior to the terrorist attacks of September 11, 2001, insurers did not specifically exclude losses stemming from terrorist attacks on industrial and commercial office buildings. At that time, only “acts of war” were excluded from coverage from most insurance policies. In the aftermath of the attacks, however, and with the subsequent conduct by the United States of the “Global War on Terror” -- the insurance industry testified before Congress that future terrorist acts could be construed as acts of war not eligible for coverage under their insurance policies.

In order to guarantee that insurance coverage would be available for the commercial real estate industry, Congress passed the Terrorism Risk Insurance Act of 2002 (TRIA), which created a federal reinsurance backstop program for terrorism insurance, and mandated that insurers make terrorism coverage available along with their property and casualty lines of insurance. In 2005, Congress passed the Terrorism Risk Insurance Extension Act (TRIEA), which extended the federal terrorism insurance backstop program for an additional two years. The extension legislation also increased reliance on the insurance industry to cover more of the losses from a terrorist attack.

The federal terrorism risk insurance program was due to expire on December 31, 2007. Near the end of 2007, the President signed H.R. 2761, the Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIA), which extended the federal terrorism insurance program for an additional seven years. The bill was a major victory for NAIOP, which had lobbied for an extension of the bill beyond just two years so that businesses would have the ability to plan more effectively for their insurance needs. NAIOP has been a long-standing member of the Coalition to Insure Against Terrorism (CIAT), which was formed to ensure renewal of the federal terrorism insurance program.

Position

NAIOP continues to support the federal terrorism risk insurance program, and supports adding coverage for nuclear, biological, chemical and radiological (NBCR) acts of terrorism.

Talking Points

• The federal terrorism risk insurance program has worked well. Unfortunately, terrorism continues to be an unpredictable threat, and the federal government must continue to play a role in ensuring that commercial property owners can continue to obtain coverage for damage due to acts of terrorism.
• The reinsurance market has not yet developed sufficient capacity to cover losses from terrorist acts, and is unlikely to develop sufficient capacity for several years, if ever. A long-term terrorism coverage solution is required in order to ensure certainty in the commercial real estate industry.
• Without adequate insurance coverage, building owners could find themselves unable to finance property sales or refinance existing debt, resulting in a lack of liquidity that would severely hamper commercial real estate markets.

Legislation

• Terrorism Risk Insurance Revision and Extension Act of 2007

• Coalition to Insure Against Terrorism (CIAT)
• CIAT Letter in support of HR 2761