WASHINGTON–The American Insurance Association has joined otherinsurance trade groups in calling on the government to insure acontinuing backup for the terrorism insurance market.

AIA said the private market is incapable of underwritingterrorism risk, meaning that any future system for covering againstattacks will require some federal government involvement.

In comments submitted to the President's Working Group onFinancial Markets, the AIA argued for a federal role in anylong-term terrorism insurance plan.

Legislation at the end of 2005, which extended the TerrorismRisk Insurance Act until 2007, included a mandate for thePresident's Working Group, which operates within the TreasuryDepartment, to examine the affordability and availability ofterrorism coverage.

The latest TRIA measure significantly raised the level of lossesby insurers from terrorist acts before the carriers would qualifyfor federal funding support.

AIA said, “Absent a financial role for the federal government inmanaging terrorism risk, most experts do not believe that theelements necessary for the private insurance market alone to assumethis risk currently exist or are likely to be present as long asthe terrorist threat remains highly volatile.”

The AIA's comments were submitted to the President's WorkingGroup by Debra Ballen, executive vice president of public policymanagement, and AIA senior vice president and general counsel J.Stephen Zielezienski.

The risks of a terrorist attack, which are difficult tounderwrite due to the unpredictable nature of attacks, increasedramatically when considering chemical, nuclear, biological orradiological attacks. Such attacks, known as CNBR, are not includedin the TRIA program, AIA said.

As the President's Working Group examines the terrorisminsurance market, the AIA called on the group to look beyond itsmandate and consider making suggestions for a future, long-termsystem for covering terrorism risk.

“We urge you not only to examine specific data relating to theavailability and affordability of terrorism risk insurance, asoutlined in TRIA, but also to develop policy recommendations thatcould provide a road map for the stable economic future ofterrorism risk insurance,” the group said. “We believe it isessential to have a plan in place well before TRIA is scheduled toexpire at the end of 2007.”

Within the past week a variety of insurance trade groups havebeen issuing comment on the TRIA issue including the Council ofInsurance Agents and Brokers and the Independent Insurance Agentsand Brokers of America, which have warned of severe economicconsequences if TRIA expires.