WASHINGTON–Senate Democrats expressed strong backing at ahearing today for continuing government insurance industry supportfor terrorism catastrophe losses, but concerns voiced about theprogram by Republicans left it unclear what a final bill will looklike.

Lawmakers' comments came at proceedings convened by Sen. ChrisDodd, D-Conn., chairman of the Senate Banking Committee, regardingthe need to reauthorize the Terrorism Risk Insurance Act extensionlegislation, which expires at the end of the year. Sen. Doddindicated he wants the committee to act promptly on the bill.

Sen. Charles Schumer, D-N.Y., a strong supporter of a permanentbill, and Michael McRaith, director of the Illinois Division ofInsurance, who represented the National Association of InsuranceCommissioners at the hearing, said insurance companies andcontracts are already being affected by the possible expiration ofthe current program.

“Terrorism insurance coverage, as companies offer it today, istypically contingent on a federal backstop, and companies againplace limitations on commercial policies to exclude terrorismcoverage if a federal backstop no longer exists,” Mr. McRaithtestified.

He added, “These limitations will greatly reduce terrorismcoverage in the states that have approved them.”

Insurance industry and policyholder representatives whotestified called for renewal legislation that provides coverage ofchemical, nuclear, biological and radiation attacks.

The one new development on the issue to emerge from the hearingwas a concession by the Consumer Federation of America that TRIAneeds to be renewed in some form.

Previously, CFA officials had characterized the program as anunnecessary giveaway to a rich insurance industry that stands inthe way of creation of a private market for terrorism riskinsurance.

However, at the hearing, Travis Plunkett, legislative directorof the CFA, conceded it was necessary to cover CNBR. “As therestill is very little coverage for CNBR attacks or large-scaleattacks that result in over $100 billion in losses, we urgeCongress to restructure TRIA to address these real needs and leaveit to the private market to cover terrorism losses of less than$100 billion.”

Mr. Plunkett “urged” the panel and Congress to consider reducingthe lines of coverage that receive TRIA back-up right now, “butcould function well without government assistance.”

Mr. Plunkett said the CFA also recommends “that Congress end theprovision of free reinsurance to a very affluent industry byrequiring insurers to pay an actuarially-based premium for whateverbackup they receive.”

At the hearing, Sen. Dodd reiterated his belief that the programshould be made permanent.

“A more permanent federal commitment is, in my view, not onlysomething that we should do, it is something that we must do,” hemaintained. Sen. Dodd was joined by Sen. Schumer, who called for apermanent program, saying extending it temporarily “discombobulatesthe markets.”

Sen. Schumer also urged adding nuclear, biological and othertypes of insurance to the program.

But Sen. Richard Shelby, R-Ala., ranking minority member of thecommittee and former chairman of the panel, disagreed.

Sen. Shelby, the banking panel's top Republican, noted that theintent was for the program to be temporary and “transitional” whenit was authorized in late 2003. The private market could do abetter job of supplying the terrorism-insurance market, hesaid.

“Because the program involves a commitment by the federalgovernment to pay for a large portion of the losses incurred by aterrorist attack, the market has significantly less incentive tocreate new ways to manage terrorism risks,” Sen. Shelby said.

Sen. Jim Bunning, R-Ken., added that any legislation passed thisyear should reduce taxpayers' exposure to losses.

In his testimony on behalf of the NAIC, Mr. McRaith said privateinsurers have shown “little appetite” to provide terrorism coveragewithout a federal backstop.

“The United States economy remains vulnerable to terroristattack and requires insurance to help manage exposure to that veryreal, unpredictable and volatile risk,” McRaith said.

In his testimony supporting extension of the program, CharlesClarke, vice chairman of Travelers, reiterated the industryargument that terrorism remains an uninsurable risk for privatesector insurers.

Mr. Clarke, who represented the American Insurance Associationat the hearing, suggested sustaining the current extension of theoriginal TRIA legislation for conventional terrorism risk,expanding the federal government's financial role in managing CNBRterrorism risk, and eliminating the current distinction betweenforeign and domestic terrorism.

He also called for a review of the program's $100 milliontrigger to better help small and mid-sized insurers, and soughtpreemption of what he termed “burdensome” state rate and formregulation with respect to terrorism insurance rates and policyforms.

Other industry trade groups that had representatives testify insupport of the extension included Reinsurance Association ofAmerica, the Independent Insurance Agents and Brokers of America,and the Council of Insurance Agents and Brokers.

Representatives of Silverstein Properties, the owner of theWorld Trade Center, and the Coalition to Insure Against Terrorism,whose members include industrial companies and real estateinvestment trusts, also backed TRIA extension.