However, Republicans in the House warned that would be like playing Russian Roulette, because the Bush administration has indicated that a straight-up extension of TRIA is unacceptable. Other observers noted that a status quo extension has no traction in the White House because conservative members of Congress–especially those in non-metropolitan constituencies–would not support it.

"It is very clear to me, and I think to Rep. Mike Oxley, that a very simple extension of the TRIA program will not be acceptable to the administration," said Rep. Richard Baker, R-La., at a hearing last week on the future of terrorism insurance before the Capital Markets Subcommittee he chairs–part of the House Financial Services Committee (chaired by Rep. Oxley, the Ohio Republican).

He was responding to calls by Rep. Paul Kanjorski, D-Pa., the ranking minority member of the subcommittee, and other Democrats that TRIA be merely extended this fall. Rep. Kanjorski talked about the need to act quickly and complained that some members of Congress appear to be opposed to progress on TRIA because they want some perfect solution to the problem.

"Delay for the purposes of perfection is a very bad idea," he said, suggesting that a reporting process provision be added to the extension bill to give stakeholders six months to submit plans for a more permanent solution.

Sens. Chris Dodd, D-Conn., and Hillary Clinton, D-N.Y., held a press conference to say there is an "urgent need" for a simple two-year extension of TRIA through legislation that Sen. Dodd co-sponsored with Sen. Robert Bennett, R-Utah. Sen. Dodd said the bill has 32 co-sponsors.

"Sadly, the recent attacks in London and Egypt remind us that terrorism can strike anytime, anywhere," he said. "And while we will do everything within our power to stop future terrorist attacks, it's important to recognize that even the threat of terrorism has a lasting effect on our economy."

Sen. Dodd added that TRIA "is working, and it's imperative that this law be extended as quickly as possible."

"It is simply a mistake to let TRIA expire. It is too important to our national security and our economy," said Sen. Clinton. "TRIA gives assurances to investors, to builders and to workers that whatever emergencies we face, we will have the means and the will to rebuild, repair and reinvest and that terrorists cannot disrupt the long-term strength of our economy."

Meanwhile, while pushing for extension of TRIA in the short-term, industry leaders acknowledged that a lesser role for the federal government in terrorism risk insurance going forward is inevitable.

Warren Heck, chairman and CEO of the Greater New York Mutual Insurance Company, summed up the industry's position in testimony before the subcommittee as "strongly endors[ing] an extension of the federal terrorism reinsurance backstop" in TRIA, "with modifications designed to maximize the development of a private market and to provide a viable long-term system to protect the economic strength of the country against terrorist attacks."

New York Insurance Superintendent Howard Mills said "it is not a question of having a backstop on Jan. 1, 2006″–the day after the current TRIA program is due to expire. "I think the primary message from everyone on this panel is, 'no gap.' We all agree that we need this yesterday."

Jason Schupp, vice president and senior assistant general counsel for Zurich, who also represented the American Insurance Association, said: "The enduring risk of catastrophic terror attacks on U.S. soil leads to a continuing need for an effective insurance mechanism beyond Dec. 31, 2005–a mechanism that must be based on the reality of the marketplace, not the hopes of theorists."

He said "there remains a critical need for a continuing public-private partnership for terrorism insurance. This is not an insurance issue–it is a business and national economic security issue."

Over the long term, John Sinnott, vice chairman of Marsh & McLennan Companies, suggested that Congress could create a pool reinsurance program where the government gets involved only when the pool's funds are exhausted. "Such a mechanism would allow the insurance industry to essentially 'backstop' itself, by growing the capacity to handle a catastrophic attack like those of Sept. 11," he said.

Currently, he noted, terrorism reinsurance is limited and prohibitively expensive in many cases. "The existence of a terrorism insurance pool and backstop may make insurers more comfortable in the market, providing them with a reinsurance vehicle that will allow them to further expand capacity," he said. "Growth in capacity will stabilize prices and decrease the need for the federal backstop over time until the government's potential liability is zero."

Mr. Heck, who also represented the National Association of Mutual Insurance Companies, explained that Pool Re–an approach used in the United Kingdom–is a mutual insurance company that is authorized only to write reinsurance relating to terrorism risk on commercial property. It differs from normal insurers and reinsurers in that it reinsures its liabilities with the British government, to which it pays a reinsurance premium and from which it will recover any claims that exceed its resources.

"I think such a balanced private-public partnership might be a key element to protecting the U.S. economy from the…risk presented by a catastrophic terrorist attack," Mr. Heck said.

Witnesses at the hearing said the industry could adapt to a new congressional plan, such as a Pool Re mechanism, very quickly. "We're convinced the industry can handle this, but they need to know what their risk is," said Mr. Mills.

Mr. Sinnott added: "I believe we could respond very quickly if we knew where we were going. We don't know where we're going now."

J. Robert Hunter, director of insurance for the Consumer Federation of America, was the only witness opposing extension of TRIA in any form. (See related story, page 7.) However, even Mr. Hunter acknowledged that the government must be involved in covering terrorist attacks involving most weapons of mass destruction, including attacks using biological, chemical or nuclear methods.

However, he added, if a WMD federal backstop is created, it should require actuarially sound rates for the reinsurance so that taxpayers are not subsidizing insurers that don't need the help.

He also suggested that the government could assist in the development of private alternatives "by allowing catastrophe reserves to build up tax-free on funds earmarked for the sole purpose of paying terrorism losses and nothing else, perhaps by placing such funds into fiduciary accounts not available except for the purpose of funding payments after terrorism losses are incurred."

Ernst Csiszar, president and CEO of the Property Casualty Insurers Association of America, criticized the Treasury Department for comments in its report on TRIA about the lack of need to cover general liability and commercial auto in any TRIA program going forward. Eliminating these two key coverages, he said, "will make it harder for the most vulnerable employers to obtain affordable coverage tailored to their needs."

As an example, Mr. Csiszar said, many of the nation's hospitals will be on the front lines in the aftermath of the next terrorist event. "Our medical and pharmaceutical research facilities serve a key role as well, particularly in the case of a biological or chemical event," he said. "These facilities need a broader array of affordable commercial coverages to remain open and viable."

William G. Stiglitz III, a Kentucky independent agent and president-elect of the Independent Insurance Agents & Brokers of America, said a federal backup to terrorism insurance is necessary, noting that the risk of terrorist attacks is a problem for business throughout America.

"I would like to stress that the interest in, and the need for, a terrorism insurance backstop is not confined solely to big urban areas," said Mr. Stiglitz, an executive with the firm of Hyland, Block & Hyland Inc., in Louisville, Ky. "Our collective experience establishes that terrorism insurance coverage is not just a big-city or big-state problem. It is a business customer problem throughout the country. This is a truly national issue."

Representing the Coalition to Insure Against Terrorism, James E. Maurin, chairman of Louisiana-based Stirling Properties, described the uncertainty surrounding the existing backstop's Dec. 31 expiration as "a wet blanket on capital creation" that will slow down new development, economic growth and job creation.

"Only a seamless continuation of the federal backstop in some form will avoid several economic impacts, some of which already are emerging with the widespread use of sunset clauses in current renewal policies," he said.

Quotebox, with Hillary Clinton mug:

"It is simply a mistake to let TRIA expire. It is too important to our national security and our economy. TRIA gives assurances…that whatever emergencies we face, we will have the means and the will to rebuild…and that terrorists cannot disrupt the long-term strength of our economy."

Sen. Hillary Clinton, D-N.Y.

"It is very clear to me, and I think to Rep. Mike Oxley, that a very simple extension of the TRIA program will not be acceptable to the [Bush] administration."

Rep. Richard Baker, R-La.