The US insurance industry is growing nervous as expiry of the federal Terrorism Risk Insurance Program Reauthorisation Act (TRIPRA) draws closer.

The Insurance Information Institute warns the private sector does not have the capacity to provide the same degree of insurance or reinsurance for terrorism risk.

“Coverage for terrorist-caused economic damages would likely be more costly or limited in scope if the Federal Government played no role in this market,” President Robert Hartwig said.

He says threats to US interests from terrorist organisations such as Islamic State reinforce the need for the Act’s extension.

The Terrorism Risk Insurance Act was first passed in 2002.

Dr Hartwig says the legislation and its successors have been “critical components of the US’s national economic security infrastructure”.

“TRIPRA has cost taxpayers virtually nothing, yet the law continues to provide tangible benefits to the US economy in the form of terrorism insurance market stability, affordability and availability,” Dr Hartwig said.

“The availability and pricing of terrorism insurance is tightening given the uncertainty over TRIPRA’s reauthorisation and because of the unique nature of terrorism risk.”

Uncertainty over the Act also has global implications.

A Guy Carpenter report says one possible outcome of the legislation lapsing is increased pressure on other pools to dissolve, “resulting in fragmentation towards a more open-market approach”.

The Act expires on December 31. The US Senate passed a bill to renew it in July but the House of Representatives has yet to vote on the bill.