The federal terrorism insurance "backstop" won't expire until the end of 2007, but construction and other industry interests already are making a case for a continued program with a federal role. An Oct. 2 Bush administration report says coverage for terrorism-related claims is more available and affordable than after 2001's terrorist attacks, but it is silent about whether the program should be extended.

Observers say Congress won't pass a terrorism insurance bill this year. "I do hope that they will address it in the next Congress," says Kelly Knott, an Associated General Contractors' congressional relations director. If developers can't get financing because they lack terrorism coverage, "they don't build," she says.

The 2002 Terrorism Risk Insurance Act set up the backstop, with a Dec. 31, 2005, expiration. Last year, Congress passed a two-year extension, but required insurers to absorb more costs (see box). Uncertainty over whether federal help will be there after Dec. 31, 2007, may affect policies up for renewal before that date, say some industry sources.

Key Elements of Current Federal Program

Authorized in 2002 for three years, but extended in 2005 through Dec. 31, 2007.

Federal backstop kicks in if insured losses per terrorism event exceed $50 million in 2006, $100 million in 2007.

Insurance company deductibles in 2005 equaled 15% of company's previous year's premiums in lines of business covered by federal program. Deductibles rise to 17.5% in 2006, 20% in 2007.

Federal government pays 90% of losses over deductible in 2006, 85% in 2007.

Combined federal/industry liability capped at $100 billion.

2005 law excludes from program several types of coverage, including surety, commercial automobile, burglary and theft.

sources: President's Working Group on Financial Markets, "Terrorism Risk Insurance"; 2005 Terrorism Risk Insurance Extension Act; congressional committees.

Industry groups want what they call a "long-term solution." One idea, floated by the Real Estate Roundtable, is a new mutual reinsurance company to provide insurers coverage for terrorism risks. Martin DePoy, steering committee chairman for the multi-industry Coalition to Insure Against Terrorism, says, "Our organization doesn't really have a position on any one program. We just want a program that works."

DePoy says the federal backstop is "the single factor making it possible for policyholders like [coalition] members to buy affordable terrorism risk insurance today." Some in the administration and Congress are looking to end the program or continue it with insurers covering more of the expense, he adds.

The new study by the President's Working Group on Financial Markets says other reports show about 60% of policyholders buy terrorism coverage now, up from 20% in 2002. Prices for the insurance have declined, it adds. But the report says insurers in general didn't provide coverage against chemical, nuclear, biological and radiological threats before the 2001 attacks and still don't offer it.