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 risk-sharing program the "Terrorism Risk Insurance Act of 2002" (TRIA), which also mandated that insurers make terrorism coverage available along with its property and casualty lines. TRIA, which was reauthorized in 2005 and 2007, expired on December 31, 2014, due to the failure of the Senate to pass a reauthorization measure in the 113th Congress. In its first act of legislative business in the 114th Congress, on January 7, 2014, the House of Representatives passed H.R. 26, the Terrorism Risk Insurance Program Reauthorization Act of 2015, which the Senate passed the following day; this reauthorized the program through 2020. In 2019, a full year ahead of its expiration, the House and Senate passed (as part of a year-end funding bill) a 7-year reauthorization of the program, with no changes to its structure. TRIA will next expire at the end of 2027.
I am a real estate professional. What does this mean for my business?
American businesses continue to rely upon the availability and affordability of terrorism risk insurance. The federal backstop program is a critical component of the private/public partnership created to protect the nation's business sector by ensuring that adequate insurance coverage is available to effectively manage economic risks. This has been a particular concern for those in commercial real estate who need to have terrorism coverage in place in order to secure financing. Commercial mortgage-backed security (CMBS) borrowers face the threat of default and bond downgrades without adequate coverage. 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, this throws the financing into technical default.
Because of the importance of terrorism insurance coverage to commercial real estate, NAR supports the continued availability and affordability of coverage made possible by the federal backstop program of the “Terrorism Risk Insurance Act of 2002” and its extensions.
The program provides stability and creates a viable insurance market, with widely available coverage and affordable premiums, at virtually no cost to taxpayers. Sustaining a viable private market for terrorism insurance depends on the federal backstop. When TRIA is allowed to lapse, or if there is even a threat that it might, the terrorism insurance market in the U.S. is disrupted (as illustrated by the lead-up months to the reauthorizations in 2005 and 2007), and terrorism insurance coverage becomes both more limited and more expensive.
The Terrorism Risk Insurance Act (TRIA) program must be reauthorized before Dec. 31, 2027.
Following the program's brief lapse in 2015 (due to Congress's failure to pass a reauthorizing bill by the end of 2014), the program was extended for 6 years (through 2020), with several structural changes to it. These included raising the "trigger" amount (the amount of losses which triggers the federal government backstop in the program) from $100 million to $200 million; decreasingthe government's share in the losses above that point from 85% to 80%; and increasing the mandatory recoupment amount from $27.5 billion to $37.5 billion.
As part of the reauthorization, several government studies were commissioned on terrorism risk insurance. The CBO released a study on the TRIA program, examining its history, how the current program works, its effects on insurance markets, and policy options for the future. Overall, this report was favorable towards TRIPRA. The Treasury Department has also conducted several studies and made reports to Congress on the program; in 2015, they asked for input on improving the certification process for the Terrorism Risk Insurance Program, which CIAT submitted comments on. In 2018, the Treasury sought comments on the effectiveness of the Terrorism Risk Insurance Program; NAR submitted a comment letter on April 30, 2018, which the Federal Insurance Office of the Treasury used compiling its June 2018 report to Congress.
In 2019, Chairwoman of the House Financial Services Committee Rep. Maxine Waters (D-CA) introduced H.R. 4634, the "Terrorism Risk Insurance Program Reauthorization Act of 2019," which reauthorized the program for 7 years. The bill was marked up and approved by the Committee on October 29, 2019. On November 19, 2019, the Senate Banking Committee, Chaired by Sen. Mike Crapo (R-ID), approved its companion bill, S. 2877, cosponsored by Sens. Thom Tillis (R-NC) and Tina Smith (D-MN).
On December 17, 2019, the House of Representatives passed H.R. 1865, a year-end spending bill which included H.R. 4634, and two days later on December 19, the Senate did the same. H.R. 1865 reauthorizes TRIA for 7 years (through 2027) and makes no changes to the structure of the program, other than to require a GAO study on cyber-terrorism.