The United States have many things to learn from Europe in real estate. After the attacks on New York's World Trade Center of September 11, 2001, which caused insured losses of $32.5 billion, France set up a government-backed insurance pool to pick up damage costs if similar attacks happen there.

Britain, with its history of bomb attacks by the Irish Republican Army, already had a pool into which insurers pay premiums. Should the pool's assets run out, the government is committed to cover claims. Germany and Spain also have terrorism insurance programs with state guarantees. It's certainly worked in the UK, it's worked in France, it's also worked in Australia.

On the other hand, the Real Estate Roundtable sent letters last week to insurers suggesting setting up Homeland Security Mutual, a voluntary pool to insure the insurers for terrorism losses. It would be modeled after Britain's Pool Reinsurance Company Limited.

The U.S. program now in place, the Terrorism Risk Insurance Act (TRIA), operates on trigger points. When company losses get too high to handle, federal funds become available. The idea of a pool, in contrast, is that it builds up private industry funds and allows the government's role to diminish over time. Current law only backstops losses from acts of foreign terrorism, but Roundtable members think the pool should cover domestic terrorism as well.

That is slightly above current law, which sets aggregate insurance industry retention for terrorism losses at $27.5 billion in 2007. The real estate industry is concerned because insurers after September 11 said they could not offer terrorism insurance. The insurance industry also wants to come up with a proposal on terrorism insurance. But there are questions about whether pools arrangements build capacity.

By M. Sese
http://realestatepress.org