The letter says, "We understand that the administration and Congress are considering proposals to provide government participation in addressing insurance risks for terrorism and war. With many real estate businesses facing policy cancellations and modifications on or before January 1, the government must act now."
The letter was signed by the following organizations: The Real Estate Roundtable, The Real Estate Board of New York, National Multi Housing Council, National Association of Real Estate Investment Trusts, National Apartment Association, Mortgage Bankers Association of America, International Council of Shopping Centers, Building Owners and Managers Association International, American Resort Development Association.
Since the attacks, the insurance industry has said that it would be able to absorb claims, which have been estimated broadly from $20 billion to $50 billion. However, insurance companies and reinsurance companies have told the administration and Congress that they might not be able to absorb such costs in the future. One major sticking point here is that early on, Bush and his team described the events of September 11 as an act of war.
Insurance companies said they would not use act of war provisions in insurance policies that would have allowed them to not pay for loss of property and life. However, terrorist risks have now become possible in a way not before known in the US, yet they remain statistically difficult to quantify. Might a theme park or a stadium be next? How about skyscrapers in major cities, or any property in downtown Washington? Without being able to quantify such risks, insurance companies are inclined to take a blunt approach, assume the worst and charge premiums that might triple or quadruple. These costs are then passed through on the financing of a building, which affects the ability of developers or institutional investors to buy or build commercial projects.
The letter emphasized the possible domino effect if the government does not take action. "Since operating a business without adequate insurance in many cases is not feasible, and is certainly unwise, real estate businesses will confront the possibility of ceasing or limiting operations until insurance once again becomes available. Without federal action, the ability to finance, buy or sell properties across the nation may be at risk.
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