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Shopping Centers Today -> June 2002
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TERROR INSURANCE A CONCERN FOR EUROPE, TOO
By Debra Hazel
The insurance crisis that hit U.S. shopping center owners in the wake of the Sept. 11 terrorist attacks on New York City and Washington, D.C., afflicted European developers as well.
“It’s virtually impossible to buy terrorism insurance,” John Bywater, managing director of developer Hammerson UK, London, told attendees at the 2002 ICSC European Conference and Exhibition, held in April at the Grimaldi Forum in Monte Carlo, Monaco. “The game has completely changed.” Bywater was vice chairman of this year’s meeting.
Insurers doubled or tripled renewal rates for policies throughout Europe, from Scandinavia to the Mediterranean. Other policies were canceled overnight, said Alexander Otto, CEO of ECE Projektmanagement, Hamburg, Germany. Policies that were formerly all-inclusive removed terrorism provisions, leaving some centers unprotected.
While rate increases were bound to occur in areas with a history of attacks on retail centers, such as Britain and the Middle East, many were galled to see premiums increased on smaller, lower-profile locations that are unlikely to be targeted by terrorists.
“You could argue that Mall of America is an icon,” said Søren Brogaard, director of Steen & Strøm Denmark, Copenhagen. (Earlier this year the Bloomington, Minn., megamall obtained separate terrorism insurance after lender GMAC Commercial Mortgage threatened to put its loan in default.) “But Olympia Storsenter in Denmark will never reach the front page of The New York Times.”
While overall High Street insurance rates rose about 15 percent after the attacks, shopping center insurance companies approaching the reassurance market (essentially a bond market that insures the insurers) found that rates had skyrocketed. Those increases have been passed on to the center owner/managers. Brogaard reported that his rates have risen from 50 percent to 130 percent on a short-term basis. Those increases will be passed on to tenants through higher rents, affecting leasing.
Over the long term, Brogaard said, he worries that terrorism insurance won’t be available for centers that need it.
The U.S. real estate industry has been lobbying its government to provide support to the insurance industry that will keep rates affordable. ICSC representatives met in April with President Bush to explain U.S. property owners’ concerns. Unable to obtain affordable terrorism coverage, some projects cannot obtain a mortgage, noted last year’s ICSC chairman, John Ingram, vice chairman of The Mills Corp., Arlington, Va.
At press time an insurance bill passed by the U.S. House to provide government insurance relief remained stuck in the Senate.
Some observers, however, have reported a more recent decline in rates and a greater availability of insurance coverage, indicating that to some degree the market is taking care of the problem itself. Otto noted that as of late April, with no attacks in Europe, insurers were starting to make their way back to the market, although still with prohibitively expensive rates.
“It’s evolving week to week,” he said. “Things have calmed down a lot.”
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