The US Terrorism Risk Insurance Program should be made permanent or given a long-term extension, Insurance Information Institute President Robert Hartwig says.

The temporary act creating the program has been renewed several times since its introduction 14 months after the 2001 World Trade Centre attacks. It is to expire at the end of 2014.

Dr Hartwig says whenever the program has neared expiration, terrorism exclusions have emerged for policies with exposure beyond the end date.

“[The act] and its successors are the principal reason for the continued stability in the insurance and reinsurance market for terrorism insurance today,” he told the House Financial Services Subcommittee on Insurance, Housing and Community Opportunity.

“It is virtually certain that terrorism exclusions will reappear in the market in 2013.”

He says the market sees terrorism risk as uninsurable because it violates the four basic requirements of insurability: there is not enough data to estimate the frequency of attacks; the maximum probable loss cannot be estimated; the risk is likely to be concentrated rather than diversifiable; and the losses are not random but co-ordinated.

The program allows the insurance industry and US Government to share losses according to a specific formula in the event of a major attack.

Dr Hartwig says it has been a success, with an estimated 60-65% take-up in the past few years. It is also affordable, costing on average 5-6% of an insured’s total insurance program. There is ample capacity in the marketplace.

A long-term or permanent program may reduce uncertainty and increase private sector participation, Mr Hartwig says.

He also proposes a privately run and financed terrorism reinsurance pool, similar to Pool Re in the UK. This could be a federally chartered mutual insurance company that would reinsure the terrorism risks of US licensed insurers and reinsurers and buy reinsurance from the Federal Government in exchange for a premium.

Mr Hartwig told the committee the threat of terrorist attacks “is both real and substantial”.

Insured losses from the September 11 attacks are estimated at $US40 billion ($37.9 billion) in 2011 dollars. It was the second most expensive event for insured losses in US history, after Hurricane Katrina.