Community Associations Institute (CAI), the insurance industry and others have persuaded the U.S. Department of Treasury to extend provisions of a law enabling community associations to obtain reasonably priced insurance coverage for acts of terrorism.
CAI wrote Treasury officials in early June, urging the government to extend the "make-available" requirements of the Terrorism Risk Insurance Act (TRIA) of 2002. Passed by Congress in response to the September 11 attacks, the act ensures that the federal government will partner with insurers to cover losses resulting from a catastrophic terrorist attack. Without action, the make-available provision would have expired Dec. 31, 2004.
TRIA stipulates that federal government resources will be used to protect insurance companies from ruinous financial losses as a result of catastrophic terrorist attacks. With that backing, insurance providers are able to provide affordable and comprehensive terrorism coverage. Without it, few if any insurance providers would be willing to offer the insurance.
TRIA limits insurance industry liability to the deductible, which is established by law, and 10 percent of further losses up to the capped limit.
CAI told Treasury that a lack of adequate insurance coverage diminishes the ability of community associations to obtain loans and comply with the insurance requirements on existing loans. That's because many financial institutions require terrorism coverage as a hedge against default and massive losses.
"We're very pleased with the decision to extend the make-available provision," says Thomas M. Skiba, CAI’s chief executive officer. "Many of our member associations would have been put in liability limbo if the government hadn't acted. As we said in our comments to Treasury, the federal government needs to fill this void until these complicated risk-assessment issues can be resolved."
The underlying problem is the inability of anyone to assess the true risk of a terrorist attack. According to CAI and the insurance industry, this has hindered the ability of insurance providers to develop accurate risk assessments and to price terrorism insurance accordingly. In fact, TRIA was created in part to give the insurance industry a transitional period to create, price and provide terrorism coverage.
A bill to extend TRIA through 2007 has been filed in the U.S. House of Representatives. CAI will work actively to support its passage. A companion bill has not yet been filed in the Senate.
More than 50 million Americans live in homeowner and condominium associations, cooperatives and other planned communities. More than a million Americans serve on community association governing boards.
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