House and Senate vote to renew the Terrorism Risk Insurance Act
Both the U.S. House of Representatives and Senate have approved the renewal of the Terrorism Risk Insurance Act. The legislation’s renewal was a fast-tracked through the House, making its way to the Senate, where it received majority support. The legislation is now awaiting President Barack Obama’s signature, which is expected to be given within the coming days. The President’s signature will enact the legislation, reinstituting the federal backstop that the insurance industry has been relying on.
Insurers will again be able to access federal backstop once the legislation is signed into law
Lawmakers had been working to renew the Terrorism Risk Insurance Act last year, but objections from one Senator allowed the law to expire at the end of December. The insurance industry was pressuring lawmakers to renew the law, suggesting that its expiration could have negative implications for the real estate industry. The law provides insurers with financial aid in the event of a terrorist attack. Without this aid, some insurers had suggested that commercial projects would be vulnerable.
Federal government will cover 85% of damages caused by terrorist attacks after insurers cover the initial $200 million
The backstop offers to cover the majority of expenses in the event of a terrorist attack after insurers have covered the first $200 million in damages. After this threshold is passed, the federal government covers 85% of the damages, which will be gradually lowered to 80% in the coming years. The backstop first became available to the insurance industry in 2002 as a response to the September 11 attacks.
Terrorism insurance may offer some stability to the real estate sector
While terrorist attacks in the United States are exceptionally rare, the insurance industry has been a strong advocate for the Terrorism Risk Insurance Act. Some insurers suggest that the legislation provides confidence to those that are developing commercial projects, such as large skyscrapers and sports stadiums. It also offers some stability to the real estate sector and allows insurers to better manage the risks that they face from potential acts of terrorism.