WASHINGTON (Reuters) - Financial losses caused by terrorists using nuclear, biological, chemical or radiological weapons are not insurable, and it's unlikely the private market would ever expand to cover them, a report by the U.S. Government Accountability Office said on Tuesday.

The conclusions were immediately seized on by insurers who said the document backed up their call for the government to take a permanent role in insuring terrorism risks.

Currently, the federal government has only a temporary role as the insurers' backstop of last resort under a law scheduled to expire at the end of 2007.

The insurance industry, the real estate industry and other business lobbyists want a long-term fix. They say the government safety net is what is keeping terrorism risk insurance available, and that the threat to the economy, particularly in areas such as construction, is great if such insurance dries up.

A hearing on the subject will be held Wednesday by a U.S. House Financial Services subcommittee.

Lawmakers had asked the GAO to study the extent to which risks were insurable from attacks with unconventional weapons, such as nuclear, biological, chemical or radiological (NBCR) weapons.

These risks "generally fail to meet most or all of the principles of an insurable risk," the non-partisan GAO declared.

"Any purely market-driven expansion of coverage is highly unlikely in the foreseeable future," the report said.

The document was released to the media by House Financial Services Committee Chairman Mike Oxley, an Ohio Republican.

The Bush administration is expected to weigh in later this week, when the President's Working Group on Financial Markets releases a report on the availability of terrorism insurance.

After the September 11, 2001 attacks, which caused insured losses of $32.5 billion, the U.S. Congress approved a temporary plan for the government to act as insurer of last resort if insurers cannot handle massive damages from terrorism attacks.

The law has been extended once already and business lobbyists are pushing for it to be renewed again. They say that billions of dollars in construction projects were stalled for months after the September 11 attacks as terrorism risk insurance was suddenly no longer available.

The American Insurance Association, a trade group, wants the federal government to provide a broad safety net for losses from all types of terrorism attacks, as part of a continued backstop program.

"We remain committed to working with business insurance policy holders, Congress and the administration to ensure that this vital issue is dealt with quickly next year, in order to minimize potential and real economic upheaval," said Julie Rochman, a spokeswoman for the insurance group.

The Real Estate Roundtable, which represents major commercial property owners such as hotel chains and office buildings, favors a different approach, similar to a system in several European countries.

It would establish a private insurance pool into which insurers would pay premiums. The government would cover claims if the pool's assets run out.

COURTESY OF WASHINGTON (Reuters)

By Susan Cornwell-Reuters