Future terrorist attacks could disrupt the US economy because the system of terrorism insurance in its present state would not offer businesses adequate financial protection, a new study by the RAND Corporation indicates.

Terrorism insurance does not protect businesses against attacks by domestic terrorists, nor does it cover attacks involving chemical, biological or nuclear weapons, the report points out.

Also, many businesses have neglected to buy terrorism insurance because the cost has soared since the attacks of September 11.

RAND analysts recommend that Congress consider proposals that would help lower the cost of terrorism insurance to encourage more businesses to purchase it. They also believe Congress should expand the Terrorism Risk Insurance Act (Tria), which provides a federal backstop to cover insurers' losses in case of a terrorist attack.

Peter Chalk of RAND said: “Protecting businesses against the economic impact of a terrorist attack should be part of a robust homeland security effort.”

Tria's fate still hangs in the balance in Washington as Congress has yet to decide whether to extend it. At the moment, it is set to expire by the end of the year.

Insurers, some of whom funded the RAND study, are lobbying the government aggressively amid fears that its passage could be derailed. The Treasury is expected to release a long-awaited analysis on Tria's effectiveness by the end of the month.

Some Republicans are lobbying against its passage because they think terrorism insurance should be left to the markets.

Under the act, the Treasury Department is obliged to cap insurers' liability and reimburse them for some losses. The bill specifies that the government must pay all insured losses greater than $12.5bn (€9.4bn, £6.5bn) in the aftermath of a nuclear, biological or chemical attack by non-Americans. In exchange, the government forced insurers to stop stripping terrorism coverage from their policies.

The RAND report urges the US government and insurers to consider programmes that would cover terrorism by national groups as well as chemical, nuclear and biological attacks. Analysts at the prominent think tank also believe state governors should form a national board to assess the performance of Tria.

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