The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is set to expire on December 31, 2014 and Congress has yet to extend it, with on-going debates taking place in the Senate on how to proceed. The insurance industry and businesses, including those in the real estate and hotel industries, have been calling on Congress to reauthorize TRIA, and not to wait until the last minute.
In fact, in February, the American Hotel & Lodging Association (AH&LA), a national association representing all segments of the 1.8 million-employee lodging industry, issued a statement following introductions by the Senate to extend TRIA: “With a December 31 deadline looming on the horizon for the current TRIA reauthorization, hoteliers are faced with growing uncertainty that their existing terrorism insurance coverage will not be extended,” said Katherine Lugar, AH&LA president/CEO. “Since its inception in 2002, this program has provided a valuable backstop for policy holders whose terrorism coverage had become cost prohibitive or in some instances unavailable. More importantly, taxpayers will not be responsible for paying any first dollar losses in the event of a future attack, with TRIA only being triggered once insurer loss thresholds are met.”
Moreover, earlier this month, Host Hotels & Resorts CEO Ed Walter on CNBC discussed why TRIA makes sense, stating that business owners and insurance companies would pay first in the event of a terrorism act, and that only in an event on the scale of 9/11 would the federal government step in. What’s more, “the way the program works, there’s an opportunity for the federal government to recoup those monies, too,” Walter explained. “I think the terrorism act is one of the strongest economic or financial weapons in the fight against terrorism,” he went on to say.
The real industry has also weighed in on TRIA reauthorization at Senate hearings in February. From the commercial real estate industry’s perspective, TRIA has been a great success. Following 9/11, insurers and reinsurers began excluding terrorism coverage on renewals after suffering insured losses of approximately $32.5 billion (or $42.9 billion in 2013), according to figures cited in a recent Insurance Information Institution (I.I.I.) report. At that time, insurer contraction in terrorism insurance presented significant challenges for the real estate industry. Without adequate terrorism insurance, it is difficult, if not impossible, to operate or acquire properties, refinance loans or sell commercial mortgage-backed securities. Congress stepped in 2002 after pressure from the banking, real estate and other industries and enacted TRIA, establishing a public/private risk-sharing partnership that allows the federal government and the insurance industry to share losses in the event of a major terrorist attack. The Act was reauthorized in 2005 and then again in 2007 with several changes.
With TRIA hanging in the balance, the Building Owners and Managers Association (BOMA) has stated that its expiration would cause an immediate and significant decrease of the available supply of terrorism insurance. This is likely to make it difficult, if not impossible, for the market to meet the potential demand for risk transfer capacity. In fact, policyholders are already receiving notices from insurers that the terrorism portion of their policy will sunset at the end of the year. BOMA has indicated that Congress’ inaction is already causing marketplace disruption.
IPOA is watching the TRIA debate closely as specialists in insuring hotels and real estate properties. We will keep you updated as developments unfold. If you would like to know more about our insurance programs, please take a look at our HotelPro and NationalPro programs. Or, give us a call at: 877.653-IPOA (4762).