Terrorism Insurance
| What is the fundamental issue? |
| Following the terrorist attacks of September 11, 2001, insurers backed out of the terrorism insurance market place prompting Congress to create a federal reinsurance backstop program in the Terrorism Risk Insurance Act of 2002 which also mandated that insurers make terrorism coverage available along with its property and casualty lines. In December 2005, Congress passed the Terrorism Risk Insurance Extension Act (TRIEA), which extended the federal terrorism insurance backstop program for an additional two years. Commercial real estate professionals again face the uncertainty of the terrorism coverage as TRIEA is set to expire at the end of 2007 and the private sector has not yet developed the capactity to provide comprehensive coverage. H.R. 2761 The Terrorism Risk Insurance Revision Extension Act would extend the terrorism insurance program more comprehensive and extend it for 15 years. |
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| I'm a Realtor®. What does this mean to my business? |
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Terrorism Insurance is critical for the financing of numerous commercial real estate transactions, particularly those in high risk areas. Over 80% of outstanding multifamily and commercial mortgage debt is subject to terrorism coverage. Thus when a commercial real estate transaction is negotiated, terrorism insurance is a key component. The expiratation of TRIEA has the potential to significantly slow commercial real estate markets.
If TRIEA were to expire without an appropriate replacement, terrorism coverage may become extremely costly or simply unavailable. In cases where terrorism insurance premiums rise significantly, the increase often cannot be passed through to the tenant. In the retail and multifamily sectors specifically, a jump in terrorism insurance premiums can reduce the value of commercial properties. If terrorism insurance becomes unavailable, the financing is thrown into technical default. |
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| NAR Policy: |
| Because of the importance of terrorism insurance coverage to commercial real estate, NAR supports the continued availability and affordability of coverage. |
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| Legislative/Regulatory Status/Outlook: |
The President's Work Group on Financial Markets issued a report on Sept. 30, 2006 that expressed preference for the private market to assume greater responsibility in providing terrorism coverage, but made no concrete recommendations.
H.R. 2761 was introduced in the House in June which extended the terrorism risk insurance program for 15 years and is set for a vote in early September, legislation is expected to be introduced in the Senate shortly thereafter. |
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Regulatory Contact:
Tom Heinemann, THeinemann@realtors.org, 202-383-1090
Media Contact:
Mary Trupo, MTrupo@realtors.org, 202-383-1007 |
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