Accurately forecasting and predicting terrorism exposure within the United States is difficult, to say the least. To make matters more challenging for the commercial real estate industry, reinsurers largely stopped reinsuring terrorism insurance policies at the same time that commercial real estate lenders and investors increasingly required terrorism coverage.
The Terrorism Risk Insurance Act (TRIA) was enacted post 9/11 to address the difficulties of insuring commercial property against terrorism risk and the limited availability of terrorism coverage. TRIA and successor legislation essentially provides a reinsurance backstop from the federal government, allowing insurers to cover losses for certain terrorism attacks and imposing assessments on the insurance industry to recover some or all federal payments.
TRIA was signed into law in 2002, extended in 2005, reauthorized in 2007, and reauthorized yet again in 2015 as the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA). TRIPRA is set to expire on December 31, 2020.
From conception to enactment and through multiple reauthorizations, TRIA and TRIPRA have enjoyed strong bipartisan support in congress and in successive Republican and Democratic presidential administrations. Renewal is on the horizon once more.
With no obvious decrease in the threat of terrorist acts, the need for, and benefits of, TRIPRA remain highly relevant to owners of commercial real estate. The Congressional Budget Office has indicated that in the absence of TRIPRA, terrorism insurance might still be available in the insurance market, but at higher premiums and lower coverage limits. Adding weight to the importance of TRIPRA is the reality that terrorism insurance is now specified in most commercial property loan documents. Without TRIPRA, commercial real estate borrowers may not be able to afford terrorism insurance required by their lenders.
There are no early indicators that reauthorizing TRIPRA will be problematic. But with a divided government, nothing should be assumed. I encourage commercial real estate owners to monitor the situation. If TRIPRA reauthorization becomes controversial, affected owners, investors, and lenders should participate in calls-to-action and contact their federal representatives and senators to encourage bipartisan action to reauthorize TRIPRA.