The US Government should extend its Terrorism Risk Insurance Program (TRIP) beyond the end date of December 31 next year or face the curtailment of cover by private insurers, according to Aon Benfield US Senior MD Edward B Ryan.

“As TRIP expires in 2014, we urge the Congress to reauthorise this program in 2013 to eliminate any uncertainty… and to meet the needs of insurers and insureds whose contracts will expire throughout the year,” he told the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity.

“Were the program to terminate in 2014, we would expect insurers to curtail the provision of terrorism insurance.”

He says this will leave businesses more exposed to the financial consequences of terrorism.

Aon Benfield subsidiary Impact Forecasting has developed a model to analyse terrorism exposures, which includes a list of 8000 potential targets and can produce “deterministic and probabilistic losses for a full range of conventional and NBCR [nuclear, biological, chemical and radiological] scenarios”, Mr Ryan says.

However, “despite these efforts terrorism risk poses great challenges as an insurable risk” because such losses are “neither predictable nor random”.

TRIP covers commercial losses with a range of mainly agricultural exclusions, but not personal lines such as life, workers’ compensation or mortgage insurance.

These are covered in the private market to a capacity of $US6-$US8 billion ($5.77-$7.7 billion) in catastrophe programs, Mr Ryan says. But there is little commercial appetite for private NBCR cover and, where it exists, it is expensive.

TRIP is essentially a reinsurance arrangement covering 85% of eligible losses up to an industry total of $US100 billion ($96.29 billion). Government costs can be recouped through a premium levy of up to 3%.

Aon lost 176 of its 1100 staff in the World Trade Centre on September 11 2001. The attacks cost the US insurance industry about $US35 billion ($33.7 billion) and led to the curtailment of terrorism cover.