WASHINGTON, Oct 24: The US faces a short-lived but severe problem in providing affordable terrorism risk insurance in the wake of the Sept. 11, attacks, Treasury Secretary Paul O’Neill warned on Wednesday.

The Administration believes that the economy is facing a temporary, but critical, market problem in the provision of terrorism risk insurance. Keeping our economy moving must be our overriding concern. Leaving this problem unresolved threatens our economic stability, O’Neill said in a prepared testimony to be delivered to the Senate Banking Committee.

After the attacks in New York City and Washington, insurers have warned that sharply higher premiums lie in store as risk for some ventures is reassessed and re-priced. In an attempt to offset those looming premium hikes or canceled policies, the Bush administration has proposed a plan to limit possible insurance industry losses by having the government absorb a shrinking portion of potential payouts over the next three years. The plan has drawn some skepticism on Capitol Hill.

By providing a temporary bridge of three years, a steadily receding federal presence and an explicit sunset, we will permit the industry to grow into this new market, said Glenn Hubbard, chairman of the White House’s Council of Economic Advisers, in his testimony.

Both O’Neill and Hubbard also agreed on the need for action by the end of the year that encourages private markets to remain engaged. It is imperative that we find a solution that works in the marketplace. We must get it right, and we must get it right now, O’Neill said.—Reuters