Warren Heck, chairman of the New York City-based Greater New York Mutual Insurance Company, said that since Jan. 1 terrorist acts have been excluded in reinsurance agreements.

Moreover, he said, these exclusions are accompanied by significant rate increases.

This has forced primary insurers to respond by either non-renewing policies, excluding terrorism coverage where possible or limiting primary coverage amounts, Mr. Heck said.

"All these factors can only lead to one conclusion: Failure to enact some sort of federal backstop will ultimately have a stultifying effect on our economy and any possible economic recovery," he said.

The problem is particularly acute in workers' compensation, said Dick Thomas, senior vice president with New York City-based American International Group.

There is no provision in the workers' compensation rates for catastrophic losses, he said. Premium increases for workers' compensation, Mr. Thomas said, will not be 100 percent to 300 percent as is the case for other lines, but could be 6,000 percent over what AIG paid for reinsurance last year.

Robert McClennan, chief executive officer of Edwardsville, Ill.-based Florist's Mutual Insurance Company, said action is needed before the country faces a "lose-lose" situation.

"Legislation is of vital importance to the stability of the marketplace," he said.

Florist's Mutual is a member of the Downers Grove, Ill.-based Alliance of American Insurers.

Mr. Heck, who represented the Indianapolis-based National Association of Mutual Insurance Companies, added that the hard market, which began prior to the Sept. 11 attacks, is responsible only for a small portion of the rate increases.

Prior to Sept. 11, he said, his company was seeing reinsurance rate increases of around 10 percent. But after Sept. 11, he said, price increases have gone "through the stratosphere," anywhere from 100 percent to 200 percent.

These increases are solely related to Sept. 11, Mr. Heck said.

Debra T. Ballen, senior vice president with the Washington-based American Insurance Association, added that while the "doomsday scenario" that some predicted for Jan. 1, 2002, has not come to pass, the fundamental problems arising from the uninsurability of terrorism risks has not gone away.

The risk has not diminished, she said, and it has not become any more predictable from an insurance perspective.

The exposure is not being absorbed in part by policyholder, in part by primary insurers and in part by reinsurers, Ms. Ballen said.

However, she said, the ratios place much more risk on policyholders and primary companies than was the case prior to Sept. 11.

"Should a major terrorist attack occur under this scenario, the resulting financial distress in both the insurance and business sectors would extend far, far, beyond the Sept. 11 scenario, as bad as that scenario has been for the insurance industry and the economy at large," Ms. Ballen said.

But Ronald Ferguson, chairman of the Stamford, Conn.-based General Reinsurance Corp., acknowledged that prospects for a comprehensive federal program are uncertain, at best.

Indeed, he said, although the loan program approved by the House of Representatives and the quota-share plan considered by the Senate were "good faith" attempts to address the issue, he does not believe they would have resulted in the kind of comprehensive program that is needed.

If Congress fails to enact a comprehensive program, Mr. Ferguson said, the best alternative is to let the marketplace work.

First of all, he said, this means that state statutes need to be changed to permit war and terrorism exclusions for certain lines, such as workers' compensation.

"We learned from the Sept. 11 attacks that the concentration of workers' compensation exposures can easily result in losses beyond the capacity of most insurers and reinsurers to absorb," he said.

Second, Mr. Ferguson said, states must avoid mandated coverages for terrorism that will reduce, rather than increase, the availability of insurance.

Allowing markets to work will allow insurers and reinsurers to provide the maximum amount of coverage they can at the lowest possible cost, he said Over time, Mr. Ferguson said, the risk appetite and underwriting abilities of insurers and reinsurers may adjust to meet the changing shape of terrorism insurance and provide more private market coverage than is currently available.