Terror Risk Insurance
Over the past years, several European countries have set up some type of insurance funding mechanism to deal with losses and damages resulting from acts of terrorism. After 9/11, and insured losses of $32.5 billion, the U.S. Congress opted to set up a similiar temporary mechanism in which the the government agrees to act as a reinsurer of last resort if insurers cannot handle massive damages from terrorism attacks.
The Terrorism Risk Insurance Act (TRIA), operates on trigger points. When company losses get too high to handle, federal funds become available. This arrangement has been extended once already and expires again at the end of 2007.
The Real Estate Roundtable lobbying group is suggesting that Congress embrace a pool approach instead of extending the temporary framework again at the end of 2007. According to the group, however, Congress and the President aren’t excited about the idea. Therefore, the group has sent a letter to insurers suggesting setting up “Homeland Security Mutual,” a voluntary pool to insure the insurers for terrorism losses. The idea is currently receiving mixed support.
Many within the real estate industry are concerned over the issues because many insurance companies will not or can not provide terrorism insurance. Since there appears to be no way in which to estimate the magnitude of future attacks, the insurance industry is reluctant to provide the coverage. However, many agree that something needs to be done. Whether that will be through the marketplace or federal regulation remains to be seen.