If Congress allows the current federal terrorism insurance to lapse, an alternative government supported program must be instituted, according to the Risk & Insurance Management Society Inc (RIMS).
In a recent letter to President Obama's Working Group on Financial Markets, RIMS President Terry Fleming wrote "The past seven years have demonstrated that the private sector alone is not able to sustain a competitive and healthy market for terrorism insurance."
The current working group, which is headed by Treasury Secretary Timothy Geithner, is required to conduct an ongoing analysis of the terrorism insurance market and submit findings to Congress later in 2010. The federal backstop began with the Terrorism Risk Insurance Act of 2002 and was extended through the Terrorism Risk Insurance Program Reauthorization Act of 2007, but is currently slated to expire in 2014.
According to Fleming, the current backstop "has worked very well since its inception." He added that RIMS believes "it is highly unlikely that terrorism risk insurance would continue to be available" at current levels and prices should the government withdraw support.
He warned that if the program expires, "there must be some alternative government-supported plan in place. The commercial insurance market cannot adequately predict or measure the financial impact of terrorism and it will not be able to provide adequate coverage for this exposure."