The Pew Charitable Trusts

Book lovers understand that the J. Willard Marriott Library and its three million-volume collection at the University of Utah in Salt Lake City are, in a sense, priceless.

But the library, like the state Capitol, is only one piece of $14.6 billion in state property left "bare" against terrorism - uninsured against damage caused by an attack. State risk managers are weighing whether or not they can afford the expensive new terrorism coverage offered by some commercial insurance providers.

What's more, said Utah risk management director Alan Edwards, the state's standard property coverage premiums for government, school and university buildings "just about doubled" when his office renewed its policies earlier this month.

Edwards is not alone in his dilemma. His colleagues around the country are asking the same set of questions as they review their insurance needs: How to mitigate their losses if a terrorist attack destroys state property and how to do it affordably.

Like cautious homeowners with limited resources and plenty to lose, every state handles the risk of damage to agency buildings, prisons, parks, roads, bridges and other infrastructure differently. Many retain large amounts of risk on all kinds of hazards, betting that damage will rarely be severe enough to justify the high costs of full-service commercial policies.

This year, most states are taking on a little more.

"A lot of us are either looking at renewals or going out for bids and we are running into either significant premium increases or not being able to get [terrorism coverage]" at all, said Missouri's Janice Steenburgen, president-elect of the State Risk and Insurance Management Association .

Officials in Hawaii, Iowa and California have declined terrorism insurance for state property. Steenburgen isn't sure whether it will even be available this fall when Missouri reviews its policies on the $600 million in bonded property it is obligated to insure.

In Wisconsin, officials received an extension of some coverage through the end of July, giving them time to tinker with the terms of a policy more than twice as expensive as last year's and to consider a quote on terrorism insurance for the Capitol in Madison.

"From one perspective, you could say more of this is uncovered. But from another perspective you could simply say that the risk manager is doing his job in making the decision about whether it is best to insure or retain a specific set of losses," said research director Eric Nordman of the National Association of Insurance Commissioners .

Wisconsin risk director Rollie Boeding said he has spoken with other states about forming an interstate terrorism risk pool to lower costs and spread potential losses. Like Edwards, Boeding wonders about the feasibility of creating a federal terrorism insurance program like one now managed by the Federal Emergency Management Agency for flood recovery.

Before Sept. 11, property insurance carriers treated terrorism like other destructive hazards such as fire or tornadoes just another potential cause of property loss. But the terrorist attacks that day wiped out or seriously damaged several of the largest office buildings in the world.

Today, the industry views terrorism as a dangerous and expensive question mark. As firms scrambled to pay out over $40 billion in claims and stay afloat after the attacks, 47 states changed their rules to allow companies to exclude terrorism from property coverage. Most small companies opted to do so, but larger carriers set up pricey terrorism policies and shopped for their own deals from the reinsurance firms that help them manage risk and pay claims.

Insurance rates were already climbing for public and private property owners on Sept. 10. Underwriting losses from natural disasters like Tropical Storm Allison, sagging investments and a cyclical downturn in the insurance market spurred premium increases long before the first plane hit the World Trade Center.

Unsurprisingly, New York faces the steepest hikes of any state. Premiums and deductibles are eight to ten times higher this year on state facilities, said state Office of General Services spokesman Randall Sawyer.

"Insurers have centuries of experience in calculating fire, hurricanes and tornadoes the kinds of threats we face day in and day out. But we only have one major event with which to judge terrorism as it affects our society here in the United States. So it's almost impossible to find some actuarial basis to determine ... how severe the next attack will be or how often these attacks will occur," said P.J. Crowley of the Insurance Information Institute , an industry organization.

Competing versions of Congressional legislation establish terms for a federal bailout of insurance companies in the event of catastrophic losses due to terrorism. But even with a strong federal commitment, it may be several years before insurers are willing to expose themselves to serious risk, or longer if another event happens soon, Crowley said.

Until coverage becomes more affordable, many states are crossing their fingers and taking the "pay as you go" approach. If terrorists target the Capitol in any of several states, officials would have to decide whether to rebuild out of state funds or borrow money through a bond issue.