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CIAT Submits Letter to Committee on Senate Banking Housing and Urban Affairs

Dear Chairman Crapo and Ranking Member Brown:

Thank you for holding this important hearing to examine the reauthorization of the Terrorism Risk Insurance Program (TRIP). The Coalition to Insure Against Terrorism (CIAT) is writing today to express its strong support for a long-term reauthorization of TRIP and to urge prompt Congressional action to renew this critical program.

CIAT is a broad coalition of commercial and non-profit insurance consumers formed immediately after 9/11 to ensure that all American businesses could obtain comprehensive terrorism insurance. The diverse CIAT membership represents commercial real estate, banking, energy, construction, hotel and hospitality, higher education, manufacturing, transportation, entertainment, the major league sports and racing, as well as public sector buyers of insurance. According to a 2019 Marsh study, the education, health care, financial institutions, and real estate sectors had the highest ‘take-up’ rates among the 17 industry segments surveyed – all above 70%.

Terrorism continues to pose a clear and present danger to our nation and to the American economy. According to the Department of Homeland Security, the U.S. continues to face one of the most challenging threat environments since 9/11. There is no homeland security without economic security. One of the stated aims of terrorists is to disrupt our economy. For example, Quazi Nafis, the Bangladeshi student arrested for plotting to attack the New York Federal Reserve in 2012, declared “… targeting America’s economy is [the] most efficient way to draw the path of obliteration of America.”

The Program has been, and remains, extremely effective in achieving its primary purpose, which was to stabilize the market following 9/11 and to ensure the continued availability of terrorism coverage for commercial policyholders in the future. America needs a stable and reliable terrorism insurance market so that employers can invest in assets and create jobs without assuming the risk and liabilities of a terrorist attack. At almost no cost to the taxpayer, the Program has been the key factor in ensuring that the private insurance market has remained intact and continues to meet the needs of commercial policyholders during the on-going threat of a future terrorist attack – all while minimizing federal taxpayer exposure.

As the principal buyers of terrorism insurance, CIAT members remember all too well the economic environment that led to establishment of the program. In the aftermath of 9/11, it was virtually impossible for commercial policyholders to secure coverage against terrorism risk; however, banks and other capital providers would not provide financing without it. According to a Real Estate Roundtable survey, over $15 billion in real estate-related transactions were stalled or even cancelled because of a lack of terrorism risk insurance in the 14 months between 9/11 and TRIA’s enactment. Additionally, due to deferred construction investment, the White House Council of Economic Advisors estimated that there was a direct loss of 300,000 jobs during that period. In short, the lack of availability of terrorism insurance for commercial policyholders had a very real and far-reaching impact on the economy. It further underscores the need to have TRIP in place to minimize the economic fallout from the next terrorist attack.

CIAT concurs with the 2018 Department of Treasury Federal Insurance Office’s “Report on the Effectiveness of the Terrorism Risk Insurance Program” which concluded that the current terrorism risk insurance program is “effective in making terrorism risk insurance available and affordable in the insurance marketplace,” and that there is insufficient “private reinsurance capacity for the exposure the Program currently supports in connection with a catastrophic terrorism loss.” There is no evidence that private markets can develop adequate terrorism risk capacity without some type of federal participation. Acts of terrorism are man-made, infrequent, and potentially catastrophic, which means quantitative risk models can’t be used to accurately analyze terrorism risk. These tools only work for exposure to natural disasters, such as hurricanes, where there is extensive loss experience. Terrorism has no season, no region, and no reliable pattern.

Without TRIP in place, we believe the availability of terrorism risk coverage will diminish, or insurers will simply stop offering the coverage altogether. CIAT members have seen evidence of this each time that the TRIP has been up for renewal (most recently in 2014). In each instance, policy renewals often included “springing exclusions” which would have voided terrorism coverage upon the expiration of TRIA. Additionally, faced with this gap in terrorism coverage and uncertainty about the continuation of the program, businesses are forced to secure expensive standalone coverage. While the Program does not expire until the end of 2020, it is important that Congress act quickly to avoid these economic disruptions.

Should the Program be allowed to sunset, we would expect a period of profound economic slow-down – posing a very real threat to our economic and homeland security. American businesses, colleges and universities, hospitals, real estate owners, and the entire financial services system all depend on their ability to finance insured collateral. Without the ability to maintain adequate insurance coverage, a business or a property owner’s capacity to finance is materially impaired and its liquidity is jeopardized.

In conclusion, the Program has been a tremendous success. It is a comprehensive plan to provide for economic continuity and recovery in the wake of a major terrorist attack, while simultaneously protecting taxpayers via a mandatory recoupment mechanism. CIAT urges Congress to promptly enact a long-term reauthorization of this important program.


The Coalition to Insure Against Terrorism

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