The heinous killings that took place at a magazine publisher in Paris at the hands of suspected Yemeni terrorists and in the name of Allah should serve as as somber reminder to Congress that the threat of terrorism is unabated.
Terrorists are ever persistent, increasingly sophisticated and virtually unpredictable. Sadly, terrorism is a permanent variable in today’s world. Here at home, the Boston Marathon bombings highlight how just how much damage even two young men can do when armed with fanatical hatred and everyday household items.
Yet when it comes to terrorism insurance, some in Congress are acting as if its 1999.
Sept. 11, 2001 brought with it the realization that terrorism insurance will forevermore be a requirement for commercial construction and real estate. Yet, the unpredictability and almost unlimited potential cost of damage meant that no marketplace existed to provide the products. This of course shut down transactions and wreaked havoc on the economy.
In this Sept. 11, 2001 file photo, American Airlines Flight 175 closes in on World Trade Center Tower 2 in New York, just before impact. (AP Photo/William Kratzke)
Thus in 2002, Congress passed the Terrorism Risk Insurance Act (TRIA) to create a federal backstop so that insurance companies could offer the terrorism coverage without risking bankruptcy. TRIA expenditures would only be trigged by a massive attack and protects taxpayers by requiring repayment in full.
TRIA broke the logjam and enabled the affected industries to get back to work creating hundreds of thousands of jobs and substantial economic growth. The Act was renewed in 2007 for a seven year term that expired on Dec. 31, 2014.
Last year, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) shepherded a renewal package through the House that contained numerous reforms to strengthen taxpayer protections along with measures intended to develop a functioning private marketplace that eventually doesn’t require any federal involvement. But, the measure fell victim to an intramural squabble between Democrats in the Senate.
The House passed TRIA yesterday and now we have to wait on the Senate. Again.
Some have argued that the lack of armageddon since the passage of the expiration date is evidence that government involvement isn’t needed. Such is frivolous thinking.
Kevin Brown, who made some of the memorial wooden crosees for the victims, observes a moment of silence at a makeshift memorial near the finish line of the Boston Marathon bomings on one week anniversary of the bombings on April 22, 2013 in Medford, Massachusetts. Credit: Getty Images
Two insurmountable facts remain: Terrorism insurance is a requirement and absent the TRIA backstop there is not yet a private marketplace to provide it. As a result, all the same negative economic consequences caused by the absence of insurance in 2002 will occur again in 2015 if TRIA isn’t renewed. The current calm is just the grace period before the storm.
The ratings agencies are watching what happens. Moody’s Investors Service has proclaimed that “a repeat failure to renew, or a prolonged delay in renewing, the terrorism backstop could have material negative credit and ratings consequences for U.S. commercial real estate and for certain classes of commercial mortgage backed securities." Fitch has identified at least 20 transactions that could be put on Rating Watch Negative should TRIA not be renewed.
Feature Image: Anthony Quintano / AnthonyQuintano.com
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