Government programs should encourage participation by private insurers, the Committee added, citing a government risk-sharing program as a possible means to accomplish this goal.

In its report, the Committee said that the impact of the Sept. 11 terrorist attack on the insurance industry is beyond the scope of its report.

Nonetheless, the Committee said, provision of terrorism risk insurance poses a difficult and complex dilemma for government policymakers.

It is difficult, if not impossible, for private firms to accurately price or calculate the new risks of terrorism, and private insurers may not be able to absorb additional catastrophic losses from terrorist attacks, the Committee said.

As a result, the Committee found, private insurers have backed away from providing terrorism coverage.

However, the Committee said, the absence of widespread terrorism insurance will entail significant, substantial costs to the macroeconomy.

"Consequently, an argument can be made for a public sector role in this case," the Committee said.

Legislation creating a government role in the terrorism insurance market passed the House last November.

However, the issue remains tied up in the Senate due to controversies over tort reform and lingering doubts over the need for a government backstop.