Community Associations Institute (CAI) is urging the U.S. Department of the Treasury to extend and expand provisions of a law that enable community associations to obtain reasonably priced insurance coverage for acts of terrorism.
CAI wrote treasury officials June 4 urging an extension of 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. The make-available provision is scheduled to expire 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 terrorism 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 officials 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.
"Thousands of community associations—and millions of Americans who live in them—will be put in a tenuous situation if TRIA isn't extended," says Thomas M. Skiba, CAI's chief executive officer. "The federal government needs to fill this void until these complicated issues can be resolved by the insurance industry."
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.
CAI cited the dilemma faced by insurance carriers: "If the federal government cannot predict the probability and scope of terrorist events, the insurance company should not be expected to pull out the proverbial crystal ball to gather the same information."
The cost of property and liability coverage for community and condominium associations has as much as tripled in many regions of the country, according to CAI. These costs could "skyrocket" in high-risk areas without the make-available provision and without federal government backing, CAI said, "adding to the already-monumental costs of property and liability coverage."
CAI and the insurance industry are also urging treasury officials to recommend that TRIA be expanded to cover losses resulting from nuclear, biological and chemical terrorist attacks. TRIA does not require that reasonably priced terrorism be made available to cover these particular forms of terrorism.
In testimony before a Congressional subcommittee in April 2004, the General Accounting Office (GAO) warned of insurance industry reluctance to offer terrorism insurance. Without the TRIA caps, GAO said insurance providers likely would be "unwilling to sell terrorism coverage because they have not found a reliable way to price their exposure to terrorist losses." GAO told the panel that current risk models "do not have enough historical data to dependably estimate the frequency or severity of terrorist events, and therefore cannot be relied upon for pricing terrorism insurance."
CAI is the only national membership organization dedicated to fostering vibrant, responsive, competent community associations. The 16,000-member organization and its 55 chapters represent managers, community association volunteer leaders, management companies and professionals who provide products and services to association-governed communities.
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