For their part, businesses are either paying for terrorism coverage or betting that they are unlikely targets and can put off buying policies until premiums drop.
Scores of corporations are talking with consultants about setting up their own insurance funds. The Air Transport Association of America, the trade group for the nation's big airlines, said it hoped to decide soon whether to start an insurance cooperative.
In New York, some big real estate transactions have stalled over negotiations for terrorism coverage, but others are proceeding. The market for bonds based on commercial mortgages, which are secured by buildings, is going strong.
Darrell Wheeler, a financial analyst at Salomon Smith Barney, said the terrorist attacks have had virtually no effect on 80 percent of the US$70 billion market in commercial mortgage bonds. Most older bonds are trading at about the same prices, he said, and new ones are being issued. But for the remainder of the market, there is some reluctance to finance projects of US$100 million or more, he said, and some investors are reluctant to buy bonds tied to individual office towers, apartment buildings and shopping malls.
Instead of foreclosing on existing loans because buildings now lack full insurance coverage, lenders are increasing their interest charges, requesting borrowers to put up more cash, or, as a real estate executive said, "holding their breath."
Softening requirements
Some financial institutions have also begun softening their insurance coverage requirements. Instead of insisting on full coverage, some lenders now just say that borrowers should make "reasonable efforts" to obtain terrorism coverage.
Mathieson said that US$100 million in terrorism coverage could easily cost US$5 million to US$10 million a year, down from US$20 million at the end of last year, but this is an approximation. Late last year, a nationwide retailer, which did not want to be identified, said it received quotes of US$3 million and US$7.5 million for US$150 million of terrorism coverage. Now, Mathieson said, the retailer is buying the coverage for US$450,000.
"It looks like the market is beginning to work this out," said Kenneth A. Froot, a financial economist at Harvard Business School. "We haven't moved to the point where we have as much coverage as we need. But we should see continuing improvement over the next 12 to 18 months."
Froot and some other economists say that the government should keep its distance from terrorism coverage. "There are big benefits from delaying any government plan," he said. "First, the true price will emerge, as opposed to an artificial one. Second, prices will force people to make decisions about construction and security. With government intervention, that is not going to happen."
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