Businesses Brace for Expiration of Federal Terrorism Insurance

Insurance and real-estate firms are preparing for the expiration of a federal terrorism-insurance program at the end of the month, warning that construction projects could be stalled and commercial loans on shopping malls, utilities and skyscrapers could be in jeopardy.

The federal program, created to encourage insurers to continue offering coverage on office buildings, sports stadiums and other potential targets after the Sept. 11, 2001 terrorist attacks, had bipartisan support in Congress but stalled during the political fighting at the end of this month’s lame-duck session.

Commercial-real-estate interests are trying to assess what happens when the program runs out Dec. 31. The federal program would help insurers cover losses over $100 million caused by a terrorist attack.

One of the biggest concerns, analysts said, is that an unknown number of loans could go into technical default when the program expires. Lenders often require developers and building owners to carry the coverage. But many of those policies are effective only if the government program is running.

“We’re very worried,” said Terry Katz, Vice President of HMS Insurance Associates, an independent insurance agency based in Cockeysville, Md. “We don’t yet know what the industry is going to do.”

Katz said her company is canvassing insurance carriers to determine what they will do about policies come January.

“It’s not just a matter of buildings; it’s a matter of having construction jobs for people. It has a real-world impact,” said Michael Greenberger, director of the Center for Health and Homeland Security at the University of Maryland, who likened the program to the government’s role in flood insurance.

“It’s really just outrageous and a primary example of the dysfunction of this Congress,” he said.

Supporters said the program revived commercial development after the 2001 attacks, when terrorism policies became scarce and expensive. In 2002, Congress enacted the Terrorism Risk Insurance Act, intended to be a temporary program in which the government shared the cost of large insurance losses. Lawmakers extended the program in 2005 and 2007.

Gauging the consequences of the program’s expiration is difficult, partly because few policyholders are willing to discuss the need to insure against terrorism. Professional sports, including the National Football League and Major League Baseball, lobbied for the reauthorization this year.

Backers of the government program said they fear that alternative policies might be hard to come by, at least at reasonable prices.

“It’s all going to come down to the individual circumstances of what the insurance contract looks like right now,” said Ed Walter, President and Chief Executive of Host Hotels & Resorts, one of the nation’s largest owners of luxury hotels.

Walter stressed that he was speaking about the industry and not specifically about Host, which is headquartered in Bethesda, Md.

“For anybody that’s trying to get a transaction done right now — whether it’s a new development or buying an existing building — the fact that this doesn’t exist now creates complexity,” he said. “At a minimum, it should cause delay.”

This article appeared in print in the December 29th, 2014 edition of Hamodia.