Terrorism insuranceInsurance firms, developers face uncertainty now that TRIA has expired

Insurance firms and commercial property developers are uncertain about how the commercial real estate industry will react now that the Terrorism Risk Insurance Act (TRIA) has expired. Many commercial property developers relied on TRIA to fulfill their loan requirements. Analysts predict real estate projects and construction jobs in Maryland, for example, will be affected by the failure to extend TRIA. According to the Baltimore Sun, a study by insurance firm Marsh found that the state had the second-highest rate of terrorism coverage among its clients, which analysts believe could be due to the state’s large concentration of federal government buildings.

“Construction could slow and employers certainly wouldn’t be looking to start any new buildings because they couldn’t afford to take the coverage on themselves,” said Janice Kirkner, president of the Maryland Association of Realtors. “The economy is still fragile. And while on the commercial end we’re making great strides, we need to have this insurance to keep us going.”

The post-9/11 legislation was established in November 2002 as a federal backstop to protect insurers in the event an act of terrorism results in losses above $100 million. It was extended and reauthorized twice, but Senate Democrats and Republicans were unable to agree on terms that would have extended the act beyond 2014.

The Homeland Security News Wire recently reported that the extension of TRIA — the Terrorism Risk Insurance Program Reauthorization Act of 2014, which was passed by the House — raised the federal coverage backstop to $200 million in industry losses. It also included a measure to create the National Association of Registered Agents and Brokers (NARAB) to make it easier for insurance agents and brokers to sell policies across state lines.

Senator Tom Coburn (R-Oklahoma), who is retiring, objected to the measure on states’ rights grounds. Congress has pledged to work on reauthorizing the legislation when it resumes in January.

“We’re very worried,” said Terry Katz, vice president of HMS Insurance Associates, an independent insurance agency based in Cockeysville, Maryland. “We don’t yet know what the industry is going to do.”

Hundreds or thousands of commercial property loans could go into technical default now that TRIA has expired. After the 9/11 attacks, lenders have required property developers and owners to carry terrorism coverage. “For anybody that’s trying to get a transaction done right now — whether it’s a new development or buying an existing building — the fact that this doesn’t exist now creates complexity,” said Ed Walter, president and CEO of Host Hotels & Resorts, one of the nation’s largest owners of luxury hotels. “At a minimum, it should cause delay.”