Industry holds its breath over insurance extension.

Without the federal government's Terrorism Risk Insurance Act (TRIA) that runs out at the end of this year, insuring the buildings at the new World Trade Center and other high-risk buildings could become a financial nightmare.

"If TRIA isn't reauthorized or replaced with another program, businesses in Manhattan and other major urban centers will face reduced access to coverage and higher terrorism insurance premiums," said Kathryn S. Wylde, president and CEO of the Partnership for New York City, the city's leading business organization.

"Inaction in Washington will make financing more difficult to obtain and create a drag on economic growth."

After the terrorist attacks on the World Trade Center, TRIA was signed into law by President Bush in November 2002. It was designed to be a short-term measure to provide a transitional period for the private markets to stabilize, resume pricing of such insurance, and build capacity to absorb any future losses, while preserving State insurance regulation and consumer protections.

By June 30, 2005, the U.S. Treasury Department will issue its report on whether or not to ex tend TRIA until December 2007. Department officials had no comment this week on how they were leaning.

The insurance industry is lobbying heavily for the passage of the extension.

"Without a continuation of some form of government re-insurance support, the insurance market will not be able to respond fully in the event of a catastrophic terrorism loss," said a 2005 report by Marsh Inc., a leading risk and insurance services firm.

"Scarce capacity will likely cause rates to rise dramatically and organizations in perceived high-risk locations in large metropolitan areas will be challenged to find affordable coverage--if they will be able to find it at all."

Acting New York Superintendent of Insurance Howard Mills testified last month before a U.S. Senate committee and urged Congress to extend the TRIA at least through 2007.

"Without a Federal backstop we could face market disruptions, and terrorism insurance will likely become less affordable, or even unavailable to consumers," said Mills.

"Insurers and the marketplace-at-large are finding it very difficult to accurately price coverage for acts of terrorism.

"Unknown frequency, coupled with the potential for severe losses, makes insurers reluctant to provide coverage for acts of terrorism." The insurance industry's estimates of losses on Sept. 11 range from $30 billion to $40 billion, including about $20 billion in losses in New York City that would have qualified for coverage under TRIA had the law been in effect on that date, according to the Congressional Budget Office.

TRIA provides up to $100 billion in financial assistance to commercial property and casualty insurers for losses above certain thresholds due to certain types of future terrorist acts.

Upon enactment, H.R. 4634 (the TRIA extension Act) would also add group life insurance to the lines of insurance that are included in this program.

"There are a number of companies that are placing an endorsement [on policies] that if TRIA is not passed that they will no longer continue to underwrite terrorism insurance," said Eric Schake, Managing Director of Marsh Inc. and head of the National Real Estate Practice.

"I think it will be an assessment of risk on the financial side for a number of stakeholders and constituents in whether they are comfortable with what terrorism insurance is available if TRIA is not passed."

WTC developer Larry Silverstein declined comment, as did several insurance companies that were involved in the insurance debacle that commenced after September 11.

Currently, Aon Risk Services, Inc. has been appointed by World Trade Center Properties LLC, an affiliate of Silverstein Properties, Inc., as broker for insurance coverage related to the construction of the Freedom Tower in Lower Manhattan.

The Aon representative that could talk about TRIA was in Africa and could not be reached for comment, said an Aon spokesman.