Beyond Bricks and Mortar: Insuring a Healthy Economy

There’s a sense of optimism among CRE professionals, cautious though it may be, that Congress may soon pass another extension of the Terrorism Risk Insurance Act (TRIA). Originally passed in 2002 to provide a federal reinsurance backstop enabling insurers to provide terrorism risk insurance at affordable rates to property owners, TRIA and the subsequent 2005 two-year extension act (TRIEA) have been vital to not only the financial health of individual properties and companies, but to the US economy as a whole.

Right now we’re holding our breath to see what happens in Congress, but the first hurdles were passed recently when legislation to extend TRIA for an additional 15 years was approved by the House Committee of Financial Services Committee, Subcommittee on Capital Markets in late July followed by the full committee approval on Aug. 1. This new bill, H.R. 2761, the Terrorism Risk Insurance Revision and Extension Act (TRIREA), includes additional changes to the program that would benefit commercial real estate even more by giving businesses a new option to purchase insurance for catastrophic non-conventional terrorism risks–nuclear, biological, chemical and radiological attacks–as well as eliminate the distinction between foreign and domestic acts of terrorism.

With the 2005 TRIA extension ending at the end of this year, how Congress acts this fall could have implications that reach beyond our industry. In a news conference held last September, representatives from the Coalition to Insure Against Terrorism (CIAT), the Real Estate Roundtable, and the US Chamber of Commerce, among other groups, underscored that “an effective homeland security program must include provisions to ensure the long-term availability of affordable terrorism risk insurance to safeguard the assets of the businesses that fuel the nation’s economy.” Research indicates that proactively reducing the financial impact of a future terrorist attack can actually reduce the likelihood of the attack. The 2006 Marsh MarketWatch Report on Terrorism Insurance analyzes the terrorism risk management impact of TRIA stating “a primary security goal of any potential terrorist target is to deter an attack by aggressively influencing the terrorists’ target research and risk/reward assessment.”