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Terrorism Insurance Program Expires Soon, Making Landlords Edgy

A bill recently introduced in Congress would extend the federal terrorism risk backstop created after the September 11, 2001, attacks until December 31, 2030. The House Financial Services Committee voted to approve the bill Wednesday.

Three New York City firefighters in front of burning building following 9/11 terrorist attack

Under the program, a predetermined formula decides how much the insurance industry pays in the event of a terrorist attack, and how much the federal government pays.

The current program, created by the Terrorism Risk Insurance Act of 2002 and modified and extended as recently as 2015 ⁠— when the program expired for a short period before reauthorization ⁠— will sunset at the end of 2020 if Congress takes no action.

The new bill, the Terrorism Risk Insurance Program Reauthorization Act of 2019 (H.R. 4634), was introduced by House Financial Services Committee Chairwoman Maxine Waters (D-California) and has 30 co-sponsors in that chamber, mostly Democrats, but also a few Republicans.

"Nearly two decades after TRIA was enacted, TRIA has thankfully never been triggered, and the program is working as intended, effectively protecting our economy from the costs of a terrorist attack and providing security for many of our nation’s hospitals, stadiums, schools and small businesses," Waters said in a statement.

In June, the Senate Banking Committee held a hearing on the reauthorization of the program that included expert witnesses from the Wharton Risk Management School, insurance brokerage Marsh and the Congressional Research Service. Banking Committee Chairman Mike Crapo (R-Idaho) and the other committee members present expressed support for the program.

The insurance industry is also generally supportive of the extension.

"The TRIA program has been an essential part of preserving our national economic security since it was established in the wake of the 9/11 attacks," National Association of Mutual Insurance Cos. Senior Vice President of Government Affairs Jimi Grande said in a statement.

TRIA dates from not long after the 2001 attacks, when the insurance industry shied away en masse from offering terrorism insurance, either for damage to commercial properties, or via drastically raised premiums.

The losses from that event were whopping. In the property sector alone, the Institute for the Analysis of Global Security estimated property and infrastructure damage of $10B to $13B ⁠— the major buildings of the World Trade Center accounting for $3B to $4.5B⁠ — and losses to the insurance industry of $40B.

Under TRIA, all U.S. property/casualty insurers are required to make terrorism coverage available, covering buildings, equipment, furnishings and inventory damaged by acts of terrorism, which is officially certified by the U.S. Treasury Department. Usually nuclear, biological and chemical attacks are excluded, as are cyberattacks, the Insurance Information Institute reports.

In conjunction with that requirement, the federal government will pay most of the damages of a terrorist event above a certain level (which has been modified over the years), up to a cap of $100B per year.

Although insurers must offer terrorism coverage, it is not mandatory for anyone to buy it, except for workers’ compensation, which compensates employees in the event of on-the-job injuries regardless of fault, Marsh notes.