A Bush administration study says that insurance coverage for terrorism-related claims is more available and more affordable than it was after the Sept. 11, 2001, attacks. But the report, issued Oct. 2, also says capacity is limited and prices "relatively high" for insurance for chemical, nuclear, biological and radiological threats.

The study doesn't contain recommendations about whether the current federal backstop for terrorism insurance should be continued past its current expiration at the end of 2007.

Industry groups are seeking what they call a "long-term solution" for the terrorism insurance situation and contend that some continued federal role is necessary. The 2002 Terrorism Risk Insurance Act (TRIA) established the federal backup coverage and authorized the program through 2005. Last year Congress extended it, with some changes, through 2007.

American Insurance Association President Marc Racicot said, "Unfortunately, the terribly unique, core characteristics of the risk that make terrorism uninsurable remain unchanged since TRIA was originally enacted. For this reason, the federal government must continue some form of public-private economic security partnership for the foreseeable future."

Related Links: Read the terrorism report

The report, mandated by last year's terrorism insurance extension measure, was produced by the President's Working Group on Financial Markets. That group is composed of the Treasury Secretary, and the chairmen of the Federal Reserve System, Securities and Exchange Commission and Commodity Futures Trading Commission.

In a letter to House and Senate finance and banking panel leaders, Treasury Secretary Henry M. Paulson, Jr., said his department believes that the 2005 terrorism insurance law "has helped support a continued increase in private sector participation in the terrorism risk insurance marketplace, even in the context of a much smaller program than what was created in 2002."

In its report, the panel found, "Despite increases in risk retentions under TRIA, insurers have allocated additional capacity to terrorism risk, prices have declined and take-up (purchase) rates have increased." It says that other reports and studies show that the purchase rate for terrorism coverage is about 60% of policyholders now, compared with approximately 20% in 2002.

The study cites several reasons for the more favorable picture, including improved risk measurement and management as well as modeling better risk measurement, management and modeling, plus expanded reinsurance capacity and property-casualty insurance companies' healthier financial condition.

But the report also says that "a significant number of policyholders are still not purchasing coverage."

In general, insurers didn't provide chemical, nuclear, biological and radiological coverage before 9/11 and still don't offer such coverage now, the working group's study says. "Given the general reluctance of insurance companies to provide coverage for these types of risks, there may be little potential for future market development," it adds.

The Coalition to Insure Against Terrorism, whose members include groups and companies in construction, real estate and other industries, says it agrees with the working group's findings about coverage for the "CNBR" risks. Martin DePoy, chairman of the coalition's steering committee, said the group is pleased that the federal backstop issue "is moving back into the public dialogue" long before the 2007 expiration date. He says the federal program "is the single factor making it possible for policyholders like [coalition] members to buy affordable terrorism risk insurance today…"

A House subcommittee held a recent hearing on terrorism insurance but Congress now is in recess until after the November elections. Action on an extension also isn't likely in the post-election, lame-duck session.