Terrorism insurance deal welcomed as a 'victory'.

New York's building owners and managers this week welcomed a government decision to extend mandatory terrorism insurance coverage into 2005.

Originally set to expire at the end of 2004, the Terrorism Risk Insurance Act's (TRIA) mandatory availability provision, which mandates that insurance companies provide terrorism coverage to their policyholders on the same terms and conditions as property and casualty insurance, was extended by US Treasury Secretary John Snow.

"No one has dealt with the forces of building-directed terrorism more than New York property owners and managers," said Roberta McGowan, executive director of BOMA/ NY, which fielded a team of more than two dozen to lobby for the extension, which she hailed as a "victory."

She said the news was particularly welcome in light of the vote earlier this month by the House Appropriations Commission to reduce funds for high threat, high density cities, which would reduce New York's appropriation from $700 to $500 million.

"The extension allows everyone who needs coverage to be able to purchase it," added McGowan

"This is a recognition by congress that the market-place isn't ready to stand on its own two feet yet," said Jay Hyde, VP of communications at the National Association of Real Estate Trusts--a member of the Coalition to Insure Against Terrorism (CIAT), a group of insurance policy holders, including BOMA and several other real estate associations, which led the lobbying effort.

"Our hope is that the act will prop things up until the industry feels more comfortable and a sense of normalcy is restored. After the attacks of 2001, no one knew if there was going to be another strike, there was overwhelming uncertainty."

Just as mandatory availability is good for CIAT members particularly vulnerable to a potential attack--like the NBA, NFL and NHL--other features of the act function as a safety net for the insurance industry.

In an effort to prevent a repeat of the kind of financial devastation insurers suffered in the wake of 9/11, TRIA provides a backstop in which the government shares 90% of the costs of a company's insured losses in the event of a terrorist strike.

Without the support of offshore re-insurers, who are wary to take on the potentially astronomical claims stemming from a future attack, TRIA may be the only way to keep terrorism coverage available. It has been suggested that further extensions, even past the current proposed extension into 2007, may be necessary.

"A lot remains to be seen how companies can write that risk," said Gary Karr, Director of Federal Media Relations at American Insurance Association. "It's clear the threat of terrorism will be longer than 2007. Is the industry going to be able to underwrite properties in a few more years without government backing? Who knows."

Part of the conundrum is terrorism's unpredictability. Unlike hurricanes or other disasters that have long been studied and whose incidence and potential are quantified, terrorism remains a phantom that can strike anytime and anywhere--although certain locations are certainly more likely than others. According to Hyde, there are tangible consequences to a future without coverage.

"If you have a famous exhibit, like King Tut, for example, and you can't get it insured, that exhibit won't be able to move to any other museum," he said. "That's just a small example of how a lack of coverage can put a cramp on business."

Currently, efforts are being made by lobbyists to extend TRIA even further, until the end of 2007.