In the closing months of last year, insurers claimed that they could not afford to continue providing coverage for potential terrorism losses. Considerable debate has taken place on what the federal government can do to keep commercial insurance companies involved in providing terrorism insurance, even without the protection that they normally receive from reinsurance. Insurance companies are withdrawing from the market because they believe that neither the frequency nor the magnitude of future terrorist losses can be estimated. Insurance coverage for terroris is disappearing, particularly for large businesses and those perceived to be at some risk. This withdrawal is happening fastest among reinsurers. Because the insurers' withdrawal has been gradual, the extent of the potential economic consequences is still unclear. What is clear is that without terrorism insurance, terrorist attacks would dramatically increase direct losses to businesses, employees, and lenders. Furthermore, the government's ability to intervene after a future terrorist attack may be hampered by its lack of claims-processing and payments systems. Even without actual terrorist attacks, some properties and businesses have been unable to find terrorism coverage at any price. These problems are likely to increase as more insurance contracts come up for renewal during the coming year. The resulting economic drag could slow economic recovery and growth.
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