In the past ten months, insurance companies in the United States have paid out an estimated $50 billion to cover the cost of the property damage and job losses resulting from the terrorist attacks of September 11.
Before those attacks, most insurance providers in the United States made no real distinction between, say, a hurricane and a terrorist attack. Damages caused by both were covered. But, that's not the case anymore. Property owners are having a difficult time getting coverage for acts of terrorism, and they're asking the federal government for help.
Insurance companies are honoring most of the claims from September 11. But many of them are also making it clear they aren't willing to assume the risk of insuring against future terrorist attacks, and the few companies that do offer such coverage are charging a lot of money for it. Properties located near major, American landmarks - or near places where large numbers of people regularly gather - seem to be having the most difficult time getting coverage.
John Yee is the Chief Financial Officer of the San Francisco Giants, a professional baseball club in California that plays in a 41,000-seat stadium. Mr. Yee says after September 11, his ball club and many other clubs across the country had difficulty getting terrorism coverage for their stadiums.
"As a matter of fact," Mr. Yee said, "in our industry, we had to band together several baseball clubs to secure the terrorism coverage that we wanted for our respective buildings. We're paying 75 percent more than we did last year, and we were able to keep the increase to 75 percent by restructuring coverages and limiting some of the coverages that we previously had."
Mr. Yee is actually pretty lucky. He was able to get coverage, and he's only paying 75 percent more for it. Real estate industry experts say some property owners are paying 200, even 300 percent more for their insurance, just so they'll be covered in the event of another terrorist attack. And a number of buildings around the White House in Washington and the Empire State Building New York are currently uninsured against terrorism, because no company is willing to assume the risk of taking them on.
There are now only four companies in the United States that sell policies covering acts of terrorism. Just two of those companies offer that coverage to businesses in the heart of the New York City. Marty DePoy, a spokesperson for the National Association of Real Estate Investment Trusts, says even when terrorism coverage is available, it's basically useless.
"There are all sorts of exclusions to the coverage," he explained, "In other words, it won't cover things like biological, chemical, you know, cyber attacks. The very type of attacks that our government leaders warn us, every day it seems, that to be on the look out for such attacks."
That's why real estate investors are joining representatives from the construction, manufacturing, sports, and entertainment industries, in asking the U.S. Congress for help. They want lawmakers to take some of the pressure off insurance companies, by agreeing to accept some of the financial risk involved in insuring against terrorism. Marty DePoy says right now, he understands why insurance companies are reluctant to offer comprehensive terrorism coverage. As a property owner, he isn't happy about it, but he says he realizes terrorism isn't like an earthquake or a hurricane.
"Right now, the insurance companies really don't know what their losses might be," Mr. Depoy said. "Unlike a natural disaster, say a hurricane or a flood of some sort, they have a lot of actuarial data on record, and they can assess risk with pretty good precision as to what their ultimate cost might be. Unlike a terrorist attack, however. This is a whole new ballgame for them. They simply can't assess the risk."
The United States government wouldn't be the first in the world to help private industry insure against terrorism. The governments of the United Kingdom and Israel, two countries with long histories of dealing with terrorism on their home soil, have both assumed some of the responsibility for terrorism insurance. In the United Kingdom, the government has agreed to pay the cost of damage once it goes beyond a certain amount, and the Israeli government has levied a special property tax on businesses to pay for the damage outright.
Julie Rochman, a spokesperson for the American Insurance Association, says it makes sense to have the government assume some of the risk involved.
"We think it's wholly appropriate for the government to be involved in terrorism coverage, because attacks by terrorists are not attacks on a particular building or city," she said, "They're attacks on the United States of America. It is the federal government that will prevent future terrorist attacks. It is the federal government that acts essentially as a loss control, or loss prevention mechanism. As a result, they have some stake in preventing attacks. They should also have some stake in those attacks that get through the defenses."
It seems that a majority of the people in the U.S. Congress may agree with Ms. Rochman, to an extent. Both the Senate and the House of Representatives have passed plans that would get the government involved in the business of terrorism insurance. Both plans call for Congress to make funds available to the insurance industry, in the event of another catastrophic terrorist attack. But the bills do differ on some points, so a House-Senate conference committee will have to work out a compromise plan. President Bush is expected to sign off on that plan, once it's complete. But it's not clear at this point when, exactly, that will be. Real estate investor Marty DePoy says he hopes Bush signs the bill no later than the end of August, because right now, many property owners are uninsured against acts of terrorism.