WASHINGTON–The real estate industry has weighed in with a proposal for a government-backed pool to cover terrorism risk.
While not embracing the total concept proposed, one insurers' trade group said they welcomed the real estate sector's effort to develop a solution to the terrorism risk problem.
The framework being advanced comes from the Real Estate Roundtable, a consortium including the leaders of top public and privately-held real estate ownership, development, lending and management firms along with national real estate trade associations.
Under their proposal a mutual insurer would be established based on the format of the United Kingdom's Pool Re.
Real Estate Roundtable's version would be known as Homeland Security Mutual, and would be governed by a board of directors comprised of the Treasury secretary, the minority and majority leaders of the House and Senate, and representatives of Homeland Security Mutual's members.
Homeland Security Mutual would then purchase retrocessional reinsurance from the U.S. government, which would indemnify the pool as its losses reduced its capital and surplus to less than 20 percent of their levels at the end of the prior year.
Homeland Security Mutual would not be required to pay any premium for this coverage until it accumulates $30 billion in surplus, and Treasury would invest those premiums in U.S. securities.
Homeland Security Mutual would offer coverage for all lines included under the Terrorism Risk Insurance Act that is now in force and would also cover group life insurance.
In a recent joint hearing of House Financial Services and Homeland Security subcommittees, Real Estate Roundtable President Jeffrey D. DeBoer told lawmakers that terrorism insurance is vitally important to the real estate and development industry in the post 9/11 environment, and that the realities of the insurance market dictate a federal role in ensuring coverage is available.
"Without some form of federal involvement, there will not be adequate private market capacity to insure the American economy against the risk of terrorism," he said, "nor will there be adequate insurance to enable the economy to quickly rebound from any future terrorist attack."
Dennis Kelly, a spokesman for the American Insurance Association, said the AIA has been working with the Real Estate Roundtable, although it has not endorsed the Homeland Security Mutual proposal and continues to search for a "workable way" to manage terrorism risk.
"What's important," he added, however, "is that the real estate community appreciates the need for a solution to the terrorism risk problem, and for a significant government part in that solution."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.