The Treasury Dept. has decided to extend the requirement that insurers make terrorism-related coverage available in all of their commercial property and casualty policies. Insurance and real estate groups have been pushing for the department to act quickly to extend the "make available" provision of the 2002 Terrorism Risk Insurance Act, arguing that their markets need the certainty that they say the decision would provide.

In its decision, announced June 18, Treasury is extending the make-available requirement by one year, making the new cutoff Dec. 31, 2005. The 2002 statute said the department had to make that decision by Sept. 1, but Treasury said it was acting early "in order to avoid any potential disruption in the terrorism risk insurance market."

The terrorism insurance law itself doesn't expire until the end of 2005, but industry already has been lobbying Congress to extend the statute long before then. In recent testimony before congressional committees, Treasury has been noncommittal about whether it will recommend continuing the 2002 law. As the statute requires, the department has launched a study of the terrorism coverage law's effectiveness, but its deadline for reporting its findings to Congress isn't until June 2005. Industry officials don't want to wait until then to decide whether to reauthorize the measure.

Snow says terrorism coverage
has been “confidence builder"

Treasury Secretary John Snow said, "The terrorism risk insurance program has been an important confidence builder as this country recovered from the attacks of September 11 and the recession. By extending the make available provision, we ensure that our overall evaluation of the program's success is based on information and assumptions that are consistent and that there's no changing of the rules in the middle of the game."

The law provides that the Treasury will, in effect, provide backup coverage for terrorism-related claims above certain thresholds.In 2004, for example, the Treasury would cover 90% of terrorism claims after an insurer's exposure exceeds 10% of its total commercial premiums.

Industry officials welcomed Treasury's decision to extend the make-available provision. "This will help prevent gaps in availability during the 2004-2005 insurance renewal season," said Martin L. DePoy, a spokesman for the Coalition to Insure Against Terrorism, whose members include the Associated General Contractors, Associated Builders & Contractors, and real estate and other business organizations.

One factor that helped get the 2002 measure through Congress was an estimated $15.5 billion in real estate transactions and construction projects delayed or cancelled because of problems with terrorism coverage availability or prices.

DePoy, who also is the National Association of Real Estate Investment Trusts' vice president for government relations, added that the coalition will push to reauthorize the terrorism insurance law through 2007. He said, "Although terrorism insurance coverage is now generally available and more affordable than prior to [the 2002 statute's] enactment, we see no significant evidence that the private market can function well in the absence of such a backstop."

(Photo courtesy of Dept. of Treasury)