Steven A. Wechsler, president and CEO of the National Association of Real Estate Investment Trusts (NAREIT), and Steve Bartlett, president of The Financial Services Roundtable, sent the following letter, dated Oct. 23, 2001, to President Bush:
“Our two organizations, representing the CEOs of the nation’s largest financial services companies and publicly traded real estate companies commend you for your leadership in formulating a proposal to address the challenges associated with the availability of insurance against risks associated with terrorism. Without such coverage, your efforts to stimulate the economy may be hindered as many business sectors will face economic disruption as a result of their inability to acquire terror-related insurance.
“As the legislative process moves forward, we stand ready to assist both you and Congress in developing a temporary federal insurance program that provides sufficient coverage against terrorist risk until the private insurance market has the capacity to cover such risks. We feel strongly that in order for the final proposal to constitute a workable solution to this problem, three specific areas of concern to our organizations need to be addressed.
“First, any federal insurance program must be of a sufficient duration to allow the private insurance market to accurately price the risks associated with terrorist acts and to build capacity in reserves to cover losses against such acts. This is necessary to give others in the marketplace confidence that that the government will not terminate its participation in the program until such time as a private market has been developed. For example, real property, being a long-lived fixed asset, generally is financed over a long- term–typically 10, 20 or 30 years. Lenders expect properties that they finance to be adequately insured for the duration of the loan agreement. Although it may be unrealistic to expect a federal program to last for ten years, it is important for policy-makers to recognize that any federal insurance program that does not provide adequate time for a private insurance market to develop may prompt lenders to resist financing long-term loans.
“Second, it is important that the definition of ‘terrorist acts’ for purposes of insurance coverage under this new federal insurance program insure against any losses arising out of future attacks by terrorists such as al Qaeda and its affiliates. Unfortunately, the unique circumstances surrounding the current conflict have the potential to blur significantly the distinction between terrorism and ‘acts of war.’ Without such clarification, our industries fear that we could be faced with years of costly litigation to prove coverage.
“Lastly, it is important that policymakers consider carefully the relative split of risk exposure among property owner, lender, insurer, and Federal Government in the final proposal. The establishment of a minimum level of insured losses to trigger participation in the federal insurance program and the significant insurer retention called for above that level, may lead private insurers to radically raise the deductibles to which ‘soft opening’ properties (office buildings, shopping malls, hotels, stadiums) are subject. This could effectively put equity positions at total risk or be tantamount to no coverage for many properties. Again, Mr. President, thank you for your leadership in pursuit of a solution to this emerging issue.”
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