Terrorism Insurance

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 of the United States on 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.

The
Issue

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. H.R. 2761 , the Terrorism Risk Insurance Revision and Extension Act of 2007 (TRIA), was enacted into law at the end of 2007, extending the program for an additional seven years. The program was set to expire at the end of 2014.

NAIOP is a member of the Coalition to Insure Against Terrorism (CIAT), which was formed to ensure continuation of the federal terrorism insurance program. Throughout 2014, NAIOP and its allies in CIAT lobbied for passage of legislation to extend the program.

Status

In December 2014, the House of Representatives overwhelmingly passed legislation reauthorizing TRIA. However, the Senate failed to pass the bill prior to the adjournment of the lame duck session of Congress, resulting in the expiration of the program. However, in January 2015, as one of their first orders of business, the 114th Congress passed HR 26, the Terrorism Risk Insurance Program Reauthorization Act, reauthorizing the program with some modifications for an additional six years. President Obama signed the legislation on January 12, 2015.

Position

The private insurance market has not attained the capacity to provide terrorism risk insurance and meet the needs of the commercial real estate industry. As a result, NAIOP continues to support continuation of the federal terrorism risk insurance program.

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. Continuation of the federal terrorism risk insurance program is required to ensure certainty in the commercial real estate industry.
  • Without adequate insurance coverage, building owners would be unable to finance property sales or refinance existing debt, resulting in a lack of liquidity that would severely hamper commercial real estate markets.