Insurance and real estate firms are scrambling to prepare
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 attacks, had bipartisan support in
Congress but became snarled in political gridlock in the final hours of this
month's lame-duck session.
For anybody that's trying to get a transaction done right
now ... the fact that this doesn't exist now creates complexity. - Ed Walter,
president and CEO of Host Hotels & Resorts, one of the nation's largest
owners of luxury hotels
While the policies are often associated with dense cities
such as New York, Maryland companies have also purchased a large share of
coverage. A study by insurance giant Marsh found the state had the
second-highest rate of coverage among its clients, which analysts said might be
explained by the state's large federal government presence and its concentration
of academic institutions.
Commercial real estate interests in Maryland and
elsewhere are trying to assess what happens when the program runs out Dec. 31.
The federal program would help insurers cover losses in excess of $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. "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.
cComments
Hey, you business
folk wanted government off your backs, now didn't you? Maybe you'll be a little
more careful in the future about what you wish for.
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,
but spokesmen for the Ravens and the Orioles did not respond to questions about
the potential impact of the program's expiration on team operations.
The NFL denied rumors this month that it would cancel the
Super Bowl over the issue.
A spokesman for the Maryland Port Administration said the
agency isn't sure whether the port of Baltimore would be affected. Several
experts said ports and related businesses often carry the coverage.
Utility companies also frequently carry the policies. A
spokesperson for Constellation Energy, a subsidiary of Chicago-based Exelon,
said the company is taking steps to purchase "alternative coverage that
will be in place Jan. 1 so that there will be no impact."
But 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 CEO 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.
"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."
Legislation that would have reauthorized the program for
six years while lowering the government's exposure enjoyed broad bipartisan
support in Congress. The measure passed the Republican-controlled House 417-7
this month, but momentum collapsed in the Senate after lawmakers failed to
reach an agreement to overcome objections from a single senator.
Republican Sen. Tom Coburn of Oklahoma raised concerns
about a provision in the bill that would have made it easier for insurance
agents and brokers to sell policies across state lines.
Coburn has since retired, and so the incoming GOP
majority in the Senate might have an easier time advancing the bill next year.
House Speaker John A. Boehner, an Ohio Republican, has indicated that his
chamber will "act very quickly" to reauthorize the program when it
reconvenes in early January.
However, Coburn is not the only one who has expressed
concerns. Robert J. Rhee, a University of Florida law professor, contends that
the risk of terrorism isn't all that different from the risk of natural
disasters.
"A federal backstop stakes public money to protect
the insurance industry, and subsidize the terrorism risk insurance premiums for
commercial policy holders," Rhee, a former University of Maryland
professor, wrote in a paper for the libertarian Cato Institute last year.
"The private market is capable of underwriting this risk."
Some Democrats, meanwhile, have objected to changes
included in the bill that would roll back provisions of the 2010 Wall Street
overhaul. House Republicans included language to exempt certain nonfinancial
companies from requirements under that law.
Democrats are under fire for altering provisions of the
financial oversight law as part of the $1 trillion government spending measure
approved this month.
Supporters of the terrorism insurance program said that
not passing an extension could have an impact on economic recovery.
"The end result would be a spiral effect," said
Janice Kirkner, president of the Maryland Association of Realtors.
"Construction could slow and employers certainly
wouldn't be looking to start any new buildings because they couldn't afford to
take the coverage on themselves," she said. "The economy is still
fragile. And while on the commercial end we're making great strides, we need to
have this insurance to keep us going."
Source: Baltimore
Sun
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