The Administration believes that the economy is facing a temporary, but critical, market problem in the provision of terrorism risk insurance

Paul O'Neill

Companies must be given access to affordable terrorism risk insurance, Mr O'Neill said.

And the government must be prepared to share the extra financial burden on insurers.

In a statement to the Senate Banking Committee, Mr O'Neill said the White House wanted to work with legislators to find a solution.

"The Administration believes that the economy is facing a temporary, but critical, market problem in the provision of terrorism risk insurance," Mr O'Neill told the committee.

"Keeping our economy moving must be our overriding concern. Leaving this problem unresolved threatens our economic stability."

Building projects 'at risk'

The insurance industry has told the Bush administration it can absorb the estimated $40bn cost of the terrorist attacks on New York and Washington.

But any further claims could cause problems.

Major re-insurance companies, which assume part of the risk covered by insurance companies, have said they will not renew terrorism coverage after 31 December, when many contracts expire.

Without terrorism cover it would be virtually impossible to get bank loans for building projects, putting a damper on the economy and the re-building effort.

Under the White House plan, which Mr O'Neill presented to Congress on Wednesday, the government would absorb a shrinking portion of potential insurance payouts over the next three years.

Scepticism

In his testimony to the Senate Banking Committee, Glenn Hubbard, chairman of the White House's Council of Economic Advisers, said: "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."

The White House plan stops short of the full-scale government-backed terrorism insurance pool many in the industry had hoped for.

But it has still been met with scepticism on Capitol Hill.

Action required now

Consumer groups have proposed an alternative plan that would provide long-term government loans to insurance companies to help them cover their losses, rather than offering direct payments from the public purse.

However, Mr O'Neill and Mr Hubbard both stressed the need for action of some sort by the end of the year.

"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," Mr O'Neill said.