Suggestions to fix federal terrorism insurance policy.
The Terrorism Risk Insurance Extension Act of 2005 (TRIEA), P.L. 109-144, signed by President Bush at the end of last year, authorizes full, mandatory taxpayer reimbursement for federal assistance provided under the program, while significantly raising the deductibles and co-shares over current program levels.
Just as with the original Terrorism Risk Insurance Act of 2002 (TRIA), which expired at the end of 2005, TRIEA is designed to keep a temporary federal terrorism insurance mechanism in place through 2006 to the end of 2007 until a permanent solution is crafted (see Mortgage Banking, January 2006, p. 97; and February 2006, p. 134).
The legislation also called for the formation of a Presidential Working Group on Financial Markets (PWG) to perform an analysis regarding the long-term availability and affordability of insurance for terrorism risk that includes nuclear, biological, chemical and radiation risks, and life coverage.
In a comment letter to the PWG, MBA President and CEO Jonathan Kempner said MBA will examine specific long-term terrorism-solution proposals based on a set of principles that will ensure adequate insurance for terrorism, as required by commercial real estate finance lenders and servicers.
"We believe that a long-term terrorism-insurance solution is not only essential to the efficient operation of the commercial real estate and finance sectors, but also is a key component in the nation's preparedness against future terrorist attacks," said Kempner. "Recognizing that the war on terror is likely to extend well beyond the TRIEA's expiration, a long-term terrorism-insurance solution needs to be developed."
MBA's suggested a system of long-term terrorism insurance be based on the following principles:
* Widely available: terrorism insurance needs to be widely available, which would require the existing "make-available" provision in TRIEA be included in a long-term terrorism-insurance solution.
* No interruptions: The long-term terrorism-insurance solution should be crafted in a manner that eliminates short-term interruptions in terrorism-insurance availability or price shocks when it is implemented.
* Affordable: Terrorism insurance needs to be priced in an affordable manner.
* All-peril coverage: Terrorism insurance will cover all perils, including nuclear, biological, chemical and radiological threats.
* All terrorism sources: Terrorism insurance should cover both foreign and domestic source terrorist events.
* Lender/servicer notifications: Lenders/servicers are listed as mortgagee, loss payee and additional insured, depending on the loan documentation, and as such they are entitled to specific notifications of coverage lapses, gaps and renewals. "Any long-term solution needs to preserve and implement the required notification," stated Kempner in the letter.
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|Title Annotation:||Terrorism Risk Insurance Extension Act of 2005|
|Date:||Jun 1, 2006|
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