Thirteen years after the terrorist attacks on America, many of the lessons seem to be fading.
But, for intensely personal reasons, I’ll never forget the tragic events of Sept. 11, 2001. Of the two hotels that Host Hotels & Resorts owned in lower Manhattan, one was destroyed by the collapse of the two World Trade Center towers and the other suffered extensive water damage during post-attack firefighting efforts.
At the doomed hotel, two employees were killed while selflessly searching the building to make sure all the guests had found their way to safety. Next to the loss of human lives, material losses fade in comparison.
As with other companies that had commercial insurance policies, Host Hotels’ financial losses were covered. But all this changed after the attacks.
Having paid out more than $30 billion in claims related to 9/11, reinsurers (the providers of backup coverage to direct insurers) withdrew from the terrorism risk insurance marketplace. Direct insurance carriers quickly followed suit by excluding terrorism coverage from their insurance policies. Thus, in the aftermath of 9/11, policyholders were left exposed to losses from any future terrorist attack.
During the fourth quarter of 2001 and much of 2002, the lack of terrorism risk coverage cost 300,000 jobs, canceled or delayed more than $15 billion in real estate transactions in 17 states, and caused a six-year low in commercial construction. The terrorists were scoring a direct hit against American businesses, American workers and the American way of life, even after the attack itself. That was why, with strong bipartisan support, Congress passed and President George W. Bush signed into law the Terrorism Risk Insurance Act in November 2002, enabling the private insurance market to provide essential coverage that otherwise wouldn’t exist.
Since its enactment in 2002, TRIA and its subsequent extensions have helped American businesses, large and small, to obtain the coverage they need to manage the risk of terrorist attacks, grow their businesses, create jobs and protect their workers.
Moreover, the nonpartisan Congressional Budget Office estimates that TRIA has no projected net cost. Rather than simply shift the cost onto the taxpayers, TRIA requires the insurers and policyholders to bear the first dollar loss up to a formula-defined level that could be as much as $37 billion in claims resulting from a terrorist attack, and insurers remain on the hook for a share of any losses above that level.
Additionally, the U.S. government is required to recoup all federal payments for terrorism events causing up to $27.5 billion in losses, and the government has the discretion to recover any additional federal payments when losses exceed that amount.
In fact, according to a new study by a respected research center, the RAND Corporation, TRIA could actually save American taxpayers billions of dollars in the event of another terrorist attack. Without TRIA, RAND said, the federal government would respond to the next terrorist event with various forms of disaster relief — but without a structure to involve the private sector. The cost to taxpayers would be significant. The study concluded that failure to reauthorize TRIA could increase federal spending by as much as $7 billion for terrorist attacks similar in magnitude to 9/11.