Real Estate Firms Call for Renewal of Federal Terror Reinsurance

April 25, 2007

If the federal government’s terrorism insurance program were allowed to expire, private market terrorism insurance coverage would become largely unavailable and unaffordable, and the gears of commercial real estate would grind to a halt, according to the National Association of Realtors and the Coalition to Insure Against Terrorism.

“The potential unavailability of terrorism risk insurance at the end of this year impacts our financing agreements and potentially hurts the commercial real estate market,” said Joseph Ditchman, former president of the Ohio Association of Realtors and a partner at Colliers Ostendorf-Morris, a Cleveland commercial real estate firm.

Speaking on behalf of NAR and CIAT in testimony before the House Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, Ditchman urged Congress to extend the coverage that was originally enacted after September 11, 2001, and extended in September 2005. “This hearing recognizes that the essential facts have not changed from when Congress enacted the Terrorism Risk Insurance Act in 2002. Terrorism continues to be an unpredictable threat.”

NAR agrees with a set of joint principles that the new legislation should contain that were developed by CIAT, along with the American Insurance Association. The two groups agree that the new legislation should be long term, eliminate the distinction between foreign and domestic acts of terrorism, and ensure coverage against losses from nuclear, biological, chemical or radiological events (NBCR), said Ditchman.

NAR believes including those principles in legislation will strengthen the terrorism risk program by reducing the uncertainty of terrorism coverage availability, and covering most conceivable forms of terrorist activity, according to Ditchman.

In earlier reports, the Government Accountability Office and the President’s Working Group on Capital Markets determined that no meaningful amount of insurance against NBCR events is available in the property market today, notwithstanding that TRIA backstops such insurance. NBCR events have been described as virtually uninsurable and there does not appear to be any mechanism to price such coverage. “To make sure businesses have access to this important coverage, we urge Congress to ensure that NBCR perils be added to the ‘make available’ requirements under TRIA,” Ditchman said.

NAR testified that it believes that the “proper” long-term solution should focus on what private markets have been unwilling or unable to do. “The ideal solutions must enable businesses to purchase insurance for the most catastrophic conventional terrorism risks, provide adequate insurance capacity in all major commercial real estate markets, particularly in high-risk urban areas, and provide meaningful insurance against the so-called NBCR risks,” said Ditchman.

He said NAR members believe that this approach will over time seek to reduce the federal role in the conventional terrorism markets and will maximize long-term private capacity by facilitating entry of new private capital.

The National Association of Realtors represents members involved in residential and commercial real estate.

Source- NAR
www.realtors.org

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