The Insurance Information Institute has warned of dire consequences for the US economy if the Terrorism Risk Insurance Act (TRIA) is allowed to expire at the end of this year.

The Act was introduced in 2002 as terrorism cover fell away following the September 11 2001 attacks. The government program, which has already been extended twice, provides reinsurance coverage in the event of major losses.

In a report called Terrorism Risk: A Constant Threat, the institute says the take-up rate for terrorism coverage has increased since TRIA, holding at about 60% for the past five years.

But if the Act is not extended availability will fall significantly in areas such as central business districts, which are most in need of cover, it warns.

Future uncertainty is already creating capacity and pricing issues, and the debate “has gained critical importance in the wake of the Boston [Marathon] bombing”.

Without the TRIA backstop many businesses would be left to self-insure, meaning future terrorist acts could damage the US economy, it says.

A recent Rand study found that if TRIA expires and the take-up rate for terrorism insurance falls, the US would be less resilient to attacks.

Recovery and rebuilding would be quicker and more efficient with high terrorism insurance penetration.

Ratings agency AM Best has warned insurer ratings could also suffer without TRIA.

A stand-alone market for terrorism insurance exists, the institute says, but a limited number of insurers have the capacity to offer large coverage limits.

And capacity today exists “in large part because of the existence of TRIA. In its absence the aggregate amount of coverage would fall dramatically.”

Terrorism remains problematic from an insurance standpoint because attacks are intentional and their frequency and severity cannot be predicted.

“Many insurers continue to question whether terrorism risk is insurable,” the report says.

“Large segments of the economy and millions of workers are exposed to significant terrorism risk, but the ability to determine precisely where or when the next attack may occur is limited, as is the ability to predict the type of attack.”