President Bush and Congress created the program nearly 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 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 are warning that if Washington does not reauthorize the program before the end of the year, terrorism coverage will become more difficult, if not impossible, to obtain, and many real estate transactions could 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 on Thursday.
The current program requires the federal government to pay 90 percent of the losses from an attack by foreign terrorists if the losses are greater than $10 billion, up to a total of $100 billion. The government will pay a smaller percentage for losses under $10 billion.
It is unclear what, if any, help will be coming from Washington. The Bush administration recently announced that it would not support an extension of the program, known as the Terrorism Risk Insurance Act, unless the insurance industry was willing to play a larger role.
Senator Richard C. Shelby, the Alabama Republican who is chairman of the Banking Committee, the panel with jurisdiction over the program, recently expressed strong skepticism about continued government involvement in the marketplace.
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 Mr. 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. Banks 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 following the 9/11 attacks, when losses totaled more than $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.)
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.
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.
