Failure to reauthorize the federal government's terrorism insurance backstop program could have negative consequences for U.S. national security, according to a study released Thursday by RAND Corp.

The program, which was established in response to the Sept. 11, 2001, terrorist attacks on New York and elsewhere by the Terrorism Risk Insurance Act of 2002, is slated to expire on Dec. 31. Neither chamber of Congress has approved legislation that would extend the program.

Several groups, including the Risk & Insurance Management Society Inc., have called upon Congress to make the program — which was temporarily reauthorized in 2005 and 2007— permanent.

The RAND study, “National Security Perspectives on Terrorism Risk Insurance in the United States,” found that terrorism remains a threat to the United States.

“Terrorism has occurred persistently in the U.S. since 2001, yet complex terrorist attacks have not occurred,” said RAND in a statement accompanying release of the report. “However, there are active terrorist groups who do aspire to conduct more complex attacks on U.S. targets, and the possibility remains that sometime in the future, one of these groups may succeed.”

The current federal terrorism insurance program has a $27.5 billion threshold for aggregate losses that are paid by the insurance industry and commercial policyholders before the government program begins paying, the study notes.

%%BREAK%%

“The threshold ensures that the insurance industry, rather than the taxpayer, is ultimately responsible for paying for those incidents that are within the range of the industry's modeling capability,” said RAND in the statement. “At the same time, that threshold permits insurance companies and policyholders to manage risks from incidents that involve deep uncertainty that cannot be adequately quantified using modeling.”

The report said that access to appropriately priced terrorism coverage can promote economic growth and that recovery and rebuilding would be quicker and more efficient if the take-up rate for terrorism insurance is high.

“Our study finds that if the act expires and the take-up rate for terrorism insurance falls, then our country would be less resilient to future terrorist attacks,” Henry Willis, lead author of the study and director of the Homeland Security and Defense Center at RAND, said in the statement.

Support for the study was provided by the property/casualty insurance industry and business groups. The study is available here.