A measure introduced in the U.S. House of Representatives last week is intended to extend the Terrorism Risk Insurance Extension Act (TRIA) for a full decade beyond its scheduled sunset in December. The act would continue a federal backstop that enables insurance companies to make terrorism insurance available to commercial real estate owners without charging exorbitant premiums.

The House bill faces an uphill battle with the Bush Administration and some House republicans, who contend TRIA should be allowed to expire. Private industry would then be compelled to come up with a viable alternative program for providing the coverage, according to the testimony of David Nason, a Treasury assistant secretary for financial institutions. Nason spoke before a House financial services subcommittee on June 21.

The White House also opposes a provision of the House bill that would compel insurers to offer affordable coverage for nuclear, chemical, biological or radiological (NCBR) damages. The commercial real estate market is functioning well without NCBR coverage now, Nason testified, so adding coverage for potentially catastrophic losses of this kind is unnecessary.

Real estate, insurance and lending organizations maintain that terrorism insurance is vital for the commercial real estate industry because rating agencies require that loans rolled into commercial mortgage-backed securities retain the insurance on underlying properties. Enacted in the wake of Sept. 11, 2001, the Terrorism Risk Insurance Act was extended at the end of 2005, thanks to lobbying efforts by the Coalition to Insure Against Terrorism and other industry groups.

The recent measure, introduced by Rep. Mike Capuano (D-Mass.) and House Financial Services Committee Chairman Barney Frank (D-Mass), drew support and praise from TRIA advocates at the June 21 hearing. Christopher Nassetta, chairman of the Real Estate Roundtable, testified that the 10-year extension would enhance the stability of the capital markets.

Dottie Cunningham, CEO of the Commercial Mortgage Securities Association, testified that CMSA and CIAT will work to ensure that a final bill passed by Congress strengthens the program by including coverage for domestic acts of terrorism, which is excluded under the current act. Further, the CMSA seeks a permanent solution that encourages the private market to offer coverage for NCBR attacks.

“Continuation of the terrorism risk insurance program in some form is the single most important legislative issue to CMSA and the commercial real estate sector this year, considering its looming expiration date,” Cunningham stated. “Commercial lenders require coverage and investors demand it.”