Amid this crisis, the country looked to the federal government for protection. One solution, created in 1933 by Congress and President Franklin D. Roosevelt, was the Federal Deposit Insurance Corp.

The FDIC provided a federal guarantee for every business and individual depositing money into an accredited bank. It restored stability and public confidence in the nation's banking system, as well as a sense of certainty in the market. If the banking industry was ever threatened again, the government would be there as a last resort, even in the darkest times.

Fast forward to 2001. Soon after the attacks on 9/11, which claimed thousands of innocent lives, many businesses across the country began to suffer. In just one week, the S&P 500 fell almost 12 percent, leading to $1.1 trillion in lost market capitalization and the bear markets of 2001 and 2002. The event proved that even the worlds most powerful economy is vulnerable to terrorism.

The attacks on 9/11 also underscored the importanceand uncertaintyof the insurance market. To date, nearly 200 insurers have paid out claims related to 9/11 losses. One estimate for insured losses exceeds $30 billionthe largest event, natural or man-made, in the industrys history. Despite such a large-scale loss, the industrys response was quick and a vital part of the nations recovery. Claims were paid without a dollar of government assistance to insurers, and private carriers were the single largest source of aid for victims.

Yet, in our new age of terrorism, industry professionals know that private insurance alone cannot accommodate the full risk of future terrorism catastrophes. Research shows that other major terrorist events could far exceed the industrys total capacity to cover claims, estimated at $114 billion for general property-casualty losses and $30 billion for workers compensation alone.

Without a federal backstop, major losses would drive many insurers into insolvency. Other insurers would begin to exclude terrorism coverage from their policies or, in states that prohibit such exclusions, exit certain locations and lines of business altogether.

Faced with this reality, Congress passed the Terrorism Risk Insurance Act in 2002. Like the FDIC, TRIA made the federal government an insurer of last resort, specifically by allocating Treasury resourceswhich could largely be replenished through post-event premium surchargesfor terrorism claims when they rose to a level that could jeopardize the health of the insurance industry. In accepting this role, Congress concluded that American businesses and workers would be exposed to an incalculable risk if the government did not offer a backstop.

But unlike the FDIC, TRIA was seen as a temporary solution, and will expire at the end of 2005. Congress had hoped that the private sector would find a way to fully accept the risk of terrorism. This has not been the case, nor will it be anytime soon.

We thus face the prospect, in one years time, of confronting the kind of catastrophic risk that the private insurance industry cannot bear alone. Even worse, insurers will largely lack private reinsurance the next time around, something that was essential to our fine response after 9/11.

Advocates of TRIAinsurers and non-insurers alikeare calling for a permanent or long-term federal backstop that will take over when TRIA ends. Opponents, however, argue that the government should not subsidize private industry, especially one they think is infused with limitless amounts of capital. In plainer terms, they sayfalselythat federal terrorism reinsurance is a handout to an industry that does not need it.

That argument is unfounded. This type of program is no different than the FDIC, which has never functioned as a handout to banks and serves only as “last resort” protection for the American economy. In fact, an example of how the government helps back up private industry was evidenced during the late 1980s, when the federal government protected the savings of countless American families amidst the failure of savings and loans across the United States.

The FDIC, acting as banker of last resort, is now a widely embraced cornerstone of our banking system. It serves no special interest groups and was created to safeguard citizens from the harm of bank failures like those that occurred during the Great Depression. It gives every American some peace of mind as they walk into a bank to protect and grow their hard-earned savings.

As our leaders responded during the Great Depression, so, too, should todays officials protect the American people from the economic havoc that could result from a terrorism event. A long-term, federal backstop for terrorism insurance is needed to provide the nation with some peace of mind even as the threat continues.

Without it, a future catastrophic attack could have a grave economic impactjust like we saw in 1929. If terrorism can create a Black Tuesday of the 21st century, then the federal government, as an insurer of last resort, should embrace its role as a partner with the insurance industry to offer this critical protection.

Ramani Ayer is chairman and CEO of The Hartford Financial Services Group Inc. in Hartford, Conn.

Reproduced from National Underwriter Edition, January 20, 2005. Copyright 2005 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.