Looming Expiration of TRIEA Raises Concerns.

Following the terrorist attacks of 9/11, in which hijackers destroyed prime office space in the World Trade Center in New York, putting other high-profile properties on an at-risk list, the availability of insurance for commercial real estate properties became an issue. Insurance against terrorist acts, which used to be part of all-risk insurance, became available on a standalone basis at a much higher cost as insurers adapted to the new environment. Servicers had to resort to force-placing the terrorism insurance in a few cases, as borrowers balked at getting the insurance.

Against this backdrop, the government enacted the Terrorism Risk Insurance Act of 2002 which provided for a government backstop after the insurance industry covered a part of the loss from any terrorist attack. This gave insurers a framework for pricing the insurance - since they had a better idea about their potential liabilities in the event of an attack - and made the insurance more widely available. TRIA was initially slated to expire in 2005 and was at that time extended for another two years as TRIEA. The extended form of the act is slated to expire this year.

According to witnesses at a recent government hearing on the subject in Downtown New York - the site of the 9/11 attacks - there is a need to extend TRIEA and also to add coverage for nuclear, biological, chemical and radiological exposures. The government is committed to extending the federal terrorism insurance backstop this year, with some specific reforms, Deborah Pryce, a Republican member on the House Financial Services Committee said (the hearing was convened by the House Financial Services Subcommittee on Capital Markets).

This is an issue, not only for New York but for the whole country, noted Sen. Charles Schumer, D-N.Y., asking for the backstop to be extended for at least 15 years, if not permanently. "We still live in the shadow of 9/11 and it is natural for insurance companies to measure risk and decide how much insurance to provide," he said. He recommended that the government "bite the bullet" and make an extension for the long-term that includes provisions for nuclear, biological, chemical and radiological attacks. As well, there should be a provision that ensures that there is sufficient insurance for "dense areas" that need a lot of coverage, such as New York.

New York Mayor Michael Bloomberg said that even ...