US lawmakers were yesterday warned that failure to extend the federal terrorism insurance backstop could be “economically devastating”.

Two leading insurance brokers and agents told the US Senate Committee on Banking, Housing and Urban Affairs that a long-term solution was needed before the current backstop legislation expires at the end of 2007.

Don Bailey, chief executive officer of insurance brokers Willis North America, also representing The Council of Insurance Agents & Brokers , testified before the Committee that if Terrorism Risk Insurance Act (TRIA) legislation was not renewed, it would “cripple, if not completely paralyse” a significant portion of the US economy.

He was backed up by Tom Minkler, of The Independent Insurance Agents & Brokers of America, who said TRIA had worked well and had saved the US economy millions of dollars.

TRIA was enacted after the devastating terrorist attacks on new York and Washington on September 11, 2001.

Through the end of 2005, federal aid under TRIA was triggered when losses exceeded $5 million. The trigger level was raised to $50 million last year and $100 million this year. The TRIA programme is due to expire on December 31, 2007.

“The most important issue for the broker community is maintaining access to coverage at a price the business consumer can afford,” Mr. Bailey said. “In order to get this access, we need insurers who are able and willing to provide the coverage.

“It is clear that they cannot and will not be able to provide terror coverage without a federal backstop or some other mechanism to cap their exposure.”

Take-up rates for terrorism insurance were high across the sectors, beyond those companies with just the highest perceived risk, as long as the coverage was affordable, Mr. Bailey said.

“Within specific industrial sectors, the largest percentage of insureds buying terrorism coverage were in real estate, financial services, health care, media, hospitality, transportation and education,” Mr. Bailey said.

“Even companies in the sectors with comparatively low take-up rates — energy and manufacturing, for example — each had take-up rates exceeding 30 percent in 2006.”

Mr. Bailey urged a widening of the federal backstop programme to include nuclear, biological, chemical or radiation (NBCR) risks.

“Extending the life of TRIA, expanding the programme to better encompass NBCR exposures and readjusting its terms to address the changed parameters will keep terrorism coverage available and the market and economy stable,” Mr. Bailey said.

The terrorism insurance market had largely stabilised since the introduction of TRIA, terrorism coverage steadily expanding and the price of coverage becoming more affordable.

“All of this provided relief that is essential to the smooth functioning of our economy,” Bailey said, and it did so without the expenditure of one cent of taxpayers’ money.

Despite those successes, Bailey said, the threat of terrorism remains “unabated and unpredictable,” and this is not the time for the federal government to cease its involvement in the terrorism insurance market.

“Allowing TRIA to expire at this time will certainly cripple, if not completely paralyse, a significant portion of our economy,” he said.

Mr. Minkler told the Committee TRIA had worked well, allowing businesses to keep on growing and jobs to be preserved.

“These laws have saved our economy millions of dollars by making terrorism insurance broadly available to all businesses that want and need this coverage at virtually no cost to the federal government,” Mr. Minkler said. “Prices have come down, capacity has grown, and demand is up in many geographic areas.”

Mr. Minkler said terrorism insurance was a critical component of national security and that such coverage would become inordinately expensive and probably unavailable to many businesses if the federal role lapses.

“TRIA is scheduled to expire on December 31, 2007, and there is no reason to believe that the threat of terrorism is on the decline, or that the private insurance markets alone can adequately meet our nation’s need for coverage,” Mr. Minkler said.

“We have seen that terrorism insurance coverage is not just a ‘big city’ or a ‘big business’ problem. It is a business customer problem throughout the country,” Mr. Minkler said.