Trouble Ahead: TRIA Renewal Briefing in D.C. Indicates Potential Disconnect

However, it is relevant because the banking as well as the real estate industry helped persuade Congress of the importance of Terrorism Risk Insurance Act because banks require commercial real estate loans to have terrorism insurance coverage, especially in such high-risk areas as New York.

Indeed, during the last debate over renewal of TRIA in 2007, Rep. Gary Ackerman, a Democrat who represented lower Manhattan, used that as a key selling point in winning congressional support for a 5-year reauthorization of TRIA. The program expires Dec. 31, 2014.

Skala said it was his view that TRIA was always meant to be only a stop-gap program, not to continue indefinitely. His comment came just as one panelist opened the discussion on the act's important by noting his company suffered both material and human losses during the Sept. 11, 2001 attack.

"Without adequate terrorism insurance coverage, our economy, our jobs and our well-being become more vulnerable to terrorism," said Ed Walter, president and CEO of Host Hotels and Resorts, Inc. "Maintaining a workable federal terrorism insurance mechanism is vital for our nation's economic security."

He added that his company was "deeply and personally affected" by the terror acts of Sept. 11.  "Host lost our Marriott World Trade Center Hotel, which was destroyed by the collapses of the World Trade Center towers, and our Marriott New York Financial Center Hotel located two blocks away was heavily damaged," Walter said at the meeting. "Much more importantly, we suffered the loss of two hotel employees."

Skala asked the panel what steps the industry taken to prepare for the day the extensions end. From the audience, Trish Henry, deputy general counsel of global government and industry affairs for Ace Group, told Skala, "The industry has not not been sitting on its hands."

Henry, an industry veteran, spoke of various risk-abatement measures and sophisticated modeling progress the industry has adopted not only to prevent risks like truck bombings, but to also provide cost analysis for events down to the building, not the zip code.

"Everyone has done what they can do," she said.

She reminded Skala that the TRIA program is designed to pay for catastrophic risks larger than 9-11. The program is capped at $100 billion, she noted. 

The briefing included the unveiling of the annual report on terrorism risk insurance written by officials at Marsh & McLennan Cos. In the report, Marsh warned Congress may not fully address the renewal of TRIA before the scheduled expiration of the law.

That would mean insurers would not be obliged to offer terrorism coverage, which would make this insurance difficult to acquire at reasonable cost for many insureds, the report said. The report also said that, besides property coverage, the workers compensation market would likely be strongly impacted by the absence of or a serious modification of TRIA.

Ben Tucker, Marsh senior vice president of Property Specialized Risk Group, said the conversations are mostly focused on merely extending TRIA, not adding new bells or whistles.

"TRIA should continue; we don't think that position has changed," Tucker said. The insurance industry is operating without knowing what potential risk is, added Tucker, who repeatedly noted that it was impossible to model for the place and timing of terrorist events because they are so unpredictable.

During his presentation and later in a brief interview, Tucker said the uncertainty regarding an extension has ramifications for the economic recovery.

He noted that the recovery hasn't been robust to begin with, and lenders will want to see terrorism risk insurance. Without it, he said, banks are less likely to extend capital, and construction companies could balk, slowing commercial growth. 

"The uncertainty surrounding the future of terrorism insurance contributed significantly to a paralysis in the economy, particularly in construction, tourism, business travel and real estate finance," Walter said.

According to a study by the Real Estate Roundtable, in the 14 months between the 2001 attacks and the enactment of TRIA, over $15 billion in real estate-related transactions were stalled or canceled because of a lack of terrorism risk insurance, Walter said.

"Perhaps more concerning, the White House Council of Economic Advisors found there was an immediate and direct loss of 300,000 jobs in that same period from deferred construction," Walter said.