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

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

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

Legislation at the end of 2005, which extended the Terrorism Risk Insurance Act until 2007, included a mandate for the President's Working Group, which operates within the Treasury Department, to examine the affordability and availability of terrorism coverage.

The latest TRIA measure significantly raised the level of losses by insurers from terrorist acts before the carriers would qualify for federal funding support.

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

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

The risks of a terrorist attack, which are difficult to underwrite due to the unpredictable nature of attacks, increase dramatically when considering chemical, nuclear, biological or radiological attacks. Such attacks, known as CNBR, are not included in the TRIA program, AIA said.

As the President's Working Group examines the terrorism insurance market, the AIA called on the group to look beyond its mandate and consider making suggestions for a future, long-term system for covering terrorism risk.

“We urge you not only to examine specific data relating to the availability and affordability of terrorism risk insurance, as outlined in TRIA, but also to develop policy recommendations that could provide a road map for the stable economic future of terrorism risk insurance,” the group said. “We believe it is essential to have a plan in place well before TRIA is scheduled to expire at the end of 2007.”

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

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