RAND Study: TRIA Saves Taxpayers Money; Roundtable Welcomes Bipartisan Senate Bill to Extend TRIA

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Apr 10, 2014, 03:28 ET

WASHINGTON, April 10, 2014 /PRNewswire-USNewswire/ -- The Real Estate Roundtable today welcomed the findings of a RAND Corp. report that the nation's Terrorism Risk Insurance Act (TRIA) helps protect U.S. taxpayers — particularly for catastrophic events on the scale of 9/11 — and that the program's expiration at year-end would mean bigger federal outlays in the event of future terrorist attacks. The Roundtable is also encouraged by the introduction of a bipartisan Senate bill today that would extend TRIA for seven years, while making key reforms to further reduce taxpayer exposure.

"As the RAND study demonstrates, keeping TRIA in place is considerably cheaper for the federal government than allowing it to expire," said Roundtable President and CEO Jeffrey D. DeBoer, noting that there have been "zero" outlays since the program's original enactment in Nov. 2002. "Unless the law is reauthorized — and the sooner the better, given the impacts already being felt by policyholders across the country — terrorism risk will again be uninsurable, the nation will face unnecessary economic headwinds, and jobs will be lost," he added.

The RAND study, titled "The Impact of Eliminating the Terrorism Risk Insurance Program on Federal Spending," concludes that, for terrorist attacks with losses up to about $40 billion, taxpayers end up paying less with TRIA in place than if the law is allowed to sunset. Under the program, government spending is not triggered until losses exceed $30 billion and until significant insurer deductibles are met (20% of prior-year direct earned premiums for covered commercial lines). Even then, the government pays 85 percent, with mandatory recoupment from policyholders up to $27.5 billion and additional recoupment at the Treasury Secretary's discretion. (For this reason, the Congressional Budget Office has "scored" the current program at zero.)

The TRIA bill unveiled by Senator Charles Schumer (D-NY) — with Senators Dean Heller (R-NV), Mark Kirk (R-IL), Mike Johanns (R-NE), Jack Reed (D-RI) and Christopher Murphy (D-CT) as co-sponsors — would increase insurer co-pays from 15% to 20% for losses above the $30 billion threshold, while increasing the recoupment amount by $10 billion, to $37.5 billion. Senate Banking Chairman Tim Johnson (D-SD) and Ranking Republican Michael Crapo (R-ID) reportedly participated in the bipartisan talks leading up to today's announcement, and may sign onto the bill as well.

Without TRIA, the RAND study suggested, terrorism insurance is expected to become far less available (as it did after 9/11) — prompting more businesses to go uninsured, and, thus, increasing the likelihood that the federal government would need to step in with billions of dollars in emergency disaster aid. According to RAND, an attack equivalent to 9/11 would now cause insured losses of about $33 billion.

In The Roundtable's view, TRIA and its subsequent extensions protect taxpayers by enabling economic activity to proceed in the face of ongoing terrorist threats; allowing the economy to recover more quickly in the event of an actual attack; and reducing federal spending in the event of an attack comparable to 9/11.

"Terrorism is a unique and ever changing risk that is virtually impossible to model," said DeBoer. "TRIA helps markets work in the face of this unpredictability, providing a pool of private capital that absorbs first losses — before one dime of taxpayer money is ever spent. TRIA is also critical to commercial real estate's ability to obtain financing — and, thus, its continued recovery from recession — since lenders will not make loans without terrorism risk coverage on the collateral."

"For the sake of our economy — and to avert a job-killing credit crunch in commercial real estate — Congress must reauthorize TRIA and do so quickly. Time is of the essence," DeBoer concluded.

The study (www.rand.org) was prepared by the RAND Center for Catastrophic Risk Management and Compensation, and is the second of three RAND policy briefs being issued on TRIA this year.

www.rer.org

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SOURCE Real Estate Roundtable