Elected officials, private insurers, builders and real estate companies are mounting a broad campaign to urge US Congress to extend a program that requires the federal government to cover insurance losses in a terrorist attack.
US President George W. Bush and Congress created the program almost three years ago, in an effort to restart billions of dollars in construction projects that had been put on hold because private insurers began excluding terrorism coverage from standard policies after the Sept. 11, 2001 attacks.
But the federal program is set to expire at the end of the year, creating uncertainty and even panic in the real estate and construction industries, particularly in New York City, with its history as a terror target, and in other areas considered vulnerable to attack, including Boston, Miami, Chicago, Los Angeles and Washington.
Industry leaders and their allies in Congress warn that if Washington does not re-authorize the program before the end of the year, terrorism coverage will become more difficult, if not impossible, to obtain and that many real estate transactions would be jeopardized.
The sense of urgency has only heightened since the deadly terrorist bombings of three subway trains and a bus in London during the morning rush last Thursday.
"Clearly what happened in London is going to make the private insurers even more skittish about offering terrorism insurance on their own," said Senator Charles Schumer, a Democrat, who has called on his colleagues to re-authorize the program.
The current program requires the federal government, in case of terrorist attack, to pay 90 percent of the losses if they are greater than US$10 billion, to a total of US$100 billion. The government will pay a smaller percentage for losses under US$10 billion.
Jeffrey DeBoer, president of the Real Estate Roundtable, an advocacy organization for the major real estate companies, said that Washington's failure to act could prompt a crisis in the industry similar to the one after the Sept 11 attacks, when more than US$15 billion in real estate transactions were held up or canceled because of a lack of terrorism insurance.
"If the year ends without a federal program of any sort, then the economy is at risk," DeBoer said.
But it is unclear what, if any, help will be coming from Washington. The Bush administration announced recently that it would not support an extension of the program, known as the Terrorism Risk Insurance Act, unless the insurance industry was willing to shoulder more of the risk.
The administration's stance was articulated in a letter that Treasury Secretary John Snow delivered to congressional leaders on the same day his agency released a long study concluding that the industry could, in time, increase its capacity to insure terrorism risk.
The administration's position has, in turn, emboldened congressional Republicans who have questioned whether the situation is as dire as business leaders claim and whether the program constitutes a needless bailout of the insurance industry.
Senator Richard Shelby, a Republican, chairman of the Banking, Housing and Urban Affairs Committee -- the panel with jurisdiction over the program -- recently expressed strong skepticism about continued government involvement.
Beyond that, he argued that the federal insurance program "has created considerable market dysfunction which in turn has led to additional dependency on the federal government backstop."
But Shelby left open the possibility that he would support a temporary extension of the program, if only to give American businesses and their insurers time to adjust to the prospect of a reduced federal role in the insurance industry.
Proponents of the current program argue that in the absence of terrorism coverage, banks will be reluctant to finance real estate purchases, construction projects or other such investments. Lenders usually require businesses to insure any property they use to secure loans, according to industry experts.
Proponents also say that critics of government intervention ignore the crisis the business community faced after the Sept. 11 attacks, when losses totaled more than US$40 billion. Insurers suddenly began excluding terrorism coverage from standard commercial policies, arguing that the risks were too difficult to predict and could ultimately ruin them. (Eventually, some insurers began to offer terrorism insurance again, though at a much higher cost and in limited amounts).
Schumer and Senator Hillary Rodham Clinton, a Democrat, recently sent a letter to Shelby and Senator Paul Sarbanes, the senior Democrat on the Banking Committee, expressing their concern about the report issued by the Treasury Department and arguing that the economy would be hurt if the federal program came to an abrupt halt.
In making their case, the two senators cited testimony that Alan Greenspan, chairman of the Federal Reserve Board, gave before a House committee contending that the private sector would not be able to provide adequate amounts of terrorism insurance on its own.
Martin DePoy, a spokesman for the Coalition to Insure Against Terrorism, made up of trade associations, corporations and non-profit groups, questioned the claims of officials who say that businesses and their insurers will be able to solve this problem without significant government involvement.
"We don't share their optimism that the private insurance market is cable of taking on this kind of risk in the near term," DePoy explained. "This risk is so unique."
Industry experts say that insurers have already begun informing their clients that they plan to sharply limit or eliminate existing coverage for terrorist attacks if the federal program expires.
That, in turn, would create all sorts of problems. Lenders, for example, could foreclose on existing loans if buildings suddenly lacked full insurance coverage. But a more realistic prospect is the response that many banks had in the immediate aftermath of the Sept. 11 attacks: increasing interest charges, or requesting that borrowers put up more money as down payments.
Rolf Lundberg, senior vice president for Congressional and Public Affairs at the US Chamber of Commerce, predicted that the consequences for the economy could be disastrous if businesses suddenly lost terrorism coverage.
"That is potentially the start of a serious storm for our economy," Lundberg explained. "We can't afford a repetition of the near paralysis that followed 9-11."
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