U.S. insurers are pushing for the extension of a federal terrorism risk insurance program, hoping to fend off a possible gap that would leave their clients scrambling for alternate coverage.

The program, which expires at the end of 2020, was created by the Terrorism Risk Insurance Act. The law was passed after the attacks of Sept. 11, 2001, when insurers suffered steep losses and some stopped offering terrorism risk insurance on commercial buildings.

The program requires insurers to offer certain types of coverage for losses caused by an event that the U.S. government has officially designated as terrorism. If losses from an attack exceed a set amount, a federal backstop kicks in to offset insurers’ payouts.

The program, which has never been triggered, is used by big businesses, owners of sports stadiums and other groups that insure against attacks that are deemed terrorism.

A timely renewal of the program is a top priority for the American Property Casualty Insurance Association, the trade group’s chief executive officer, David Sampson, said in a recent interview. Sampson also wants Congress to make the program permanent and provide more clarity about coverage for cyber terrorism.

But the possibility that U.S. lawmakers may not extend the program promptly is already spurring insurers and brokers to discuss alternatives with commercial customers, who are beginning the process of policy renewal for next year.

“I’m not surprised that the industry is already thinking of it,” said Howard Mills, global insurance regulatory leader for Deloitte. “It has always been a big question for the market because Congress doesn’t focus on it until the expiration date is right on top of them.”

The Terrorism Risk Insurance Act was signed into law by President George W. Bush in November 2002. Congress extended the program in 2005 and has reauthorized it twice since then.

Memories of Madness

Memories of a brief lapse in the program after 2014, when some conservative lawmakers called for the private sector to pay more terror-related losses before federal government funding kicks in, are still fresh to the industry.

“What we experienced during that two-week period was basically insanity,” Jennifer Rubin, who heads the terrorism, war and political violence products line for insurer Hiscox Ltd, said in a recent interview. Hiscox was “deluged” with requests for terrorism policies that were not tied to the federal program, she said.

Policies that are not backed by the program, known as standalone coverage, tend to be costlier in high-risk areas, such as New York, Washington and San Francisco, insurers and brokers said.

But many customers in risky areas prefer them because they have fewer restrictions than the government-backed program, which requires a U.S. declaration that an international terrorism act took place, they said.

Gearing Up

Brokers Aon Plc and Marsh, a Marsh & McLennan Companies Inc. unit, said they have begun telling customers about alternatives to the government-backed program, such as a contingency policy that activates if it does not renew on time.

Many clients in high-risk areas, such as New York, are already looking into buying two-year standalone policies that will insure them through 2021, regardless of what happens with the government program, said Christof Bentele, global head of crisis management at Allianz Global Corporate & Specialty, a unit of Allianz SE.

As commercial customers buy up standalone coverage, those who may also need this type of coverage at the last minute—if the government-backed program lapses—may not be able to obtain it or may have to pay extra, insurers said.

Many insurance professionals believe that a timely renewal is more likely next year than in 2014. They point to the recent takeover of the U.S. House of Representatives by Democrats, with some Democrats saying that renewal of the Terrorism Risk Insurance Act should be a priority. Also, at least one key Republican, U.S. Senator Mike Crapo of Idaho, said on Jan. 29 that renewing the terrorism program is a priority. Crapo is chairman of the Senate Banking Committee.

Still, the Banking Committee will consider possible changes, such as boosting coinsurance and increasing amounts the U.S. government may recoup through policyholder surcharges, Crapo said at the time.

As the battle unfolds, some customers that already have the government-backed insurance may decide to roll the dice and risk going bare if the program lapses, Bentele said.

That could make more sense for a shop owner in Alabama than a building-owner in Manhattan, he said. “If you don’t have coverage in New York City, I’d feel really uncomfortable,” Bentele added.