With a key piece of post-September 11 legislation nearing expiration, a war of words has broken out in the US over the future of terrorism insurance.

The Terrorism Risk Insurance Act (TRIA) was passed in 2002, a year after the attacks on New York and Washington that prompted reinsurers to withdraw from terrorism cover, forcing insurers to follow them.

The Act allows the Federal Government and insurance industry to share losses in the event of a major attack.

Its current iteration expires at the end of next year, but three bills have already been introduced that propose extending it for five and 10 years respectively.

Key figures in the insurance industry have been pushing for an extension, arguing TRIA maintains stability in insurance markets and benefits the wider economy.

But they have come under fire from some quarters.

The Consumer Federation of America (CFA) has labelled insurers “nervous nellies” and accused them of “preferring extreme caution to their normal risk-taking role”.

CFA Director of Insurance J Robert Hunter says Congress should note the property and casualty industry’s near-record levels of surplus capital and the large taxpayer subsidies required by TRIA.

“We understand the desire of the insurers to keep a free reinsurance program and thus further expand their profits, but at a time of record-breaking federal budget deficits, we question the wisdom of providing multibillion-dollar subsidies to an industry that can easily afford to insure many terrorist events even larger than 9/11,” he said.

The industry’s response has been withering.

“Strangely, the CFA presumes to have more knowledge about the likelihood and cost of future terrorist attacks than the insurance industry and Federal Government combined,” Insurance Information Institute President Robert Hartwig said.

In fact, neither the frequency nor cost of attacks can be accurately predicted, meaning private-sector insurers have difficulty pricing terrorism risk, he says.

The American Academy of Actuaries estimates hundreds of billions of dollars in payouts could be generated by a single act of terrorism, according to Dr Hartwig.

“The evidence, both in the US and from similar programs abroad, is that market stability in terms of both pricing and availability of terrorism coverage – as well as the ability to maintain adequate and expanding levels of capacity over time – are contingent on the continued existence of the terrorism risk insurance program.”

Dr Hartwig’s view is echoed by American Insurance Association President and CEO Leigh Ann Pusey.

Terrorism insurance is essential for businesses, and the recent Boston Marathon bombs have reinforced the need for TRIA, she says.

“Time is of the essence”, because insurance policies written from next January will be affected if there is no resolution, she warns.

“Such uncertainty would be harmful to policyholders, the insurance market and the broader economy.”

TRIA has allowed brokers to sell – and businesses to buy – terrorism coverage that was previously limited or unavailable, Ms Pusey says.

“For the sake of our national economic security, the terrorism risk insurance program must be continued.”

Without TRIA, commercial insurers could retreat from large metropolitan areas, reducing coverage and pushing up premium rates, ratings agency Fitch says.

“A lack of available insurance coverage can create secondary economic repercussions that affect property values, construction activity and employment.”

These are just the opening rounds of what could be a long and arduous legislative battle. The insurance industry can only hope it ends up on the winning side.