Printer Friendly

Experts: TRIA must address evolving private-sector threats.

EVEN IF THE TERRORISM RISK INSURANCE ACT of 2002 (TRIA) is renewed or extended by Congress in one form or another, implementing an insurance backstop won't be the end of the problem but simply the beginning of the solution, a panel of experts concluded during the National Symposium on Terrorism Risk Insurance in Washington, D.C., in October.

Enacted in November 2002 in the wake of the Sept. 11, 2001, terrorist attacks, TRIA created a temporary program to share future insured terrorism losses with the property-casualty insurance industry and policyholders. The act allows commercial mortgage borrowers to obtain terrorism insurance coverage at a reasonable cost, while satisfying terrorism insurance requirements of commercial servicers. TRIA is set to expire at the end of 2005.

TRIA not only must be renewed, but it must be improved to provide adequate economic and financial protection against an evolving terrorist threat, said Howard Kunreuther, co-director of the Wharton Risk Management and Decision Processes Center, University of Pennsylvania, Philadelphia.

"Another comparable attack [to Sept. 11] in the short term could seriously impact the public by threatening the financial stability of the insurance industry and its ability to protect public and private property," said Kunreuther.

The Mortgage Bankers Association supports extension of TRIA through 2007, as well as the crafting of a permanent solution for terrorism insurance coverage.

TRIA was created in 2002 as a temporary solution, but its extension or replacement will need to address the new realities of tomorrow, including the need for more involvement by the private sector, said Douglas Holtz-Eakin, director of the Congressional Budget Office (CBO).

Advocates of a large-scale government bail-out should disabuse themselves of the notion that the private sector can't bear the costs, because one way or another the private sector will pay, warned Holtz-Eakin.

Robert Reville, co-director of the RAND Center for Terrorism Risk Management Policy, Santa Monica, California, noted an ever-increasing risk for the private sector in the wake of government successes on the global war on terrorism.

"Terrorism is a dynamic threat," Reville said. "The terrorists react to our actions and seek innovative ways to undermine our defenses." Among the recent trends, he noted, is an increased focus on "soft" targets, or civilian-centric venues, as well as an ongoing emphasis on economically motivated attacks.

Reville noted two key implications for terrorism insurance coverage in a RAND report he co-authored, Trends in Terrorism: Threats to the United States and the Future of the Terrorism Risk Insurance Act. First, TRIA does not provide adequate financial protection, particularly in the face of economically motivated attacks. Second, TRIA has "significant gaps and is not robust enough given an evolving threat," the report noted.

The most profound risk is in the area of chemical, biological, radiological and nuclear (CBRN) attacks, for which insurers are not required to offer coverage except under workers' compensation.

Another significant gap is TRIA's exclusion of domestic attacks, which is problematic because al Qaeda "franchises" attacks to local affiliates and because it is difficult to attribute attacks to a particular group, according to the report.
COPYRIGHT 2005 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2005 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:terrorism Risk Insurance Act of 2002's renewal
Publication:Mortgage Banking
Geographic Code:1USA
Date:Nov 1, 2005
Previous Article:Q2 commercial/multifamily mortgage debt outstanding surpasses $2.4 trillion.
Next Article:Mold following Hurricane Katrina poses a problem for CMBS market.

Related Articles
Terrorism insurance deal welcomed as a 'victory'.
In times of terror scares, insurers need assurance.
Securities Association urges Congress to renew TRIA.
Congress extends terrorism insurance program.
Bush signs terrorism insurance stopgap extension.
TRIA renewal shifts burden to insurers.
Executives expect Congress to renew terrorism insurance.
House subcommittee mulls longer-term TRIEA extension.

Terms of use | Privacy policy | Copyright © 2018 Farlex, Inc. | Feedback | For webmasters