An agents group is warning there will be severe economic consequences if the Terrorism Risk Insurance Act expires without a permanent government or private mechanism in place to help the terrorism insurance market.
The statement from the Independent Insurance Agents and Brokers of America came in response to a request for comment by the President's Working Group on Financial Markets, which is studying the issue of terrorism insurance availability.
The renewal of the TRIA program, passed late last year, effectively maintained the federal backstop against attacks by foreign terrorists, although for fewer insurance lines and with much higher thresholds for government intervention.
President Bush signed the two-year program extension into law just over a week before TRIA was set to expire.
IIABA noted that currently chemical, nuclear, biological and radiological coverage (CNBR) is excluded from the TRIA program and generally considered uninsurable by companies.
IIABA said if no long-term solution is found, general terrorism coverage would probably be viewed the same way, meaning the federal government would likely have to pay for a major bailout in the aftermath of an attack.
"Given that a CNBR attack is potentially devastating and greatly exposes taxpayers to a tremendous burden, it is imperative that policymakers and the private sector work together to help develop the private insurance market's capacity for potential losses," said Brendan Reilly, assistant vice president for federal government affairs for the IIABA.
"As demonstrated with non-CNBR coverage under TRIA, we do not expect the private insurance market to view CNBR risks as insurable or move toward developing capacity to cover such risks without encouragement from the federal government," Mr. Reilly said.
IABA advised policymakers to take advantage of the two-year window to develop a long-term solution to the problems of insuring against terrorism.
"Although the terrorism insurance program was only recently extended, now is the time to start looking ahead," said Mr. Reilly.
"The program," he said, "was only renewed for a two-year period, so it is crucial that the industry, its regulators and policymakers in Washington begin exploring long-term solutions to ensure continued access to this much needed coverage."
Members of the Working Group include the secretary of the Treasury, the chairman of the Federal Reserve Board, the chairman of the Securities and Exchange Commission and the chairman of the Commodity Futures Trading Commission.
In addition to federal officials the group is working with the National Association of Insurance Commissioners, representatives of the insurance and securities industries, and representatives of policyholders.
As part of the TRIA extension language, the mandate of the group is to analyze the long-term availability and affordability of terrorism insurance.
That analysis, under the law, will also include coverage for group life insurance and for chemical, nuclear, biological and radiological attacks.
IIABA said without a long-term solution in place economic markets will be subject to severe disruption and uncertainty as investors shy away from projects that could be viewed as vulnerable to attack.
Terrorist attacks, the IIABA noted, can take place anywhere, and the potential damages of $100 billion far exceed the insurance industry's capacity to cover losses.
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