The new chairman of the Senate banking committee, Christopher J. Dodd (D-Conn.), wants to find a permanent way for the federal government to help deal with insurance claims from terrorist acts. Under the 2002 Terrorism Risk Insurance Act, the Treasury provides "backstop" coverage when terrorism-related claims exceed certain levels. That program was extended in 2005, but is set to expire at the end of 2007.

Current federal "backstop" insurance program was established in 2002 and extended in 2005. It expires Dec. 30, 2007. Connecticut's senior senator and incoming banking committee chairman will not do another extension. He wants a permanent piece of legislation, not a temporary one.

Dodd, who will take the panel's chair thanks to the Democrats' recently won Senate majority, says he won't continue the status quo. "I will not do another extension." he says. "My goal here is to establish a permanent piece of legislation, not a temporary one."

He told reporters Dec. 7, "For a wide range of financial interests in the country, [the federal backstop] has been critically important, and has worked, by the way." Dodd didn't specify the type of new legislation he has in mind, but has asked the insurance and real estate industries to see if they can reach "common ground" on concepts for a bill.

"We think it's very encouraging he's made a commitment to pushing for a long-term solution," says Clifton Rodgers, senior vice president of The Real Estate Roundtable. Rodgers says another extension won't provide the certainty that markets need.

Dodd, who will take over from outgoing committee chairman Richard Shelby (R-Ala.), says he wants to start work on a terrorism insurance bill "fairly early" in 2007. "I don't want to wait until the fall [and be] down to the crunch time and trying to get it done," he says.

Rodgers says the House probably will move before the Senate next year on terrorism insurance, with hearings and a bill approved early in 2007.

The Bush administration backed the 2002 measure, but wasn't as supportive of the 2005 extension, says Rodgers. With former Goldman Sachs Chairman Henry M. Paulson Jr. now Treasury Secretary, Rodgers says that "you've got a team over there that certainly understands capital markets. That understanding will, we hope, provide perhaps a different outlook for the administration in 2007 than previously expressed."

Under the current program, the federal government this year pays 90% of losses from terrorism events above insurers' deductibles. The threshold declines to 85% in 2007. This year's deductible equals 17.5% of an insurer's 2005 premiums in certain lines of business. The percentage rises in 2007 to 20% of premiums. The combined federal-industry liability is capped at $100 billion. Some types of insurance, including surety, commercial automobile, burglary and theft, aren't covered by the backstop.