The life insurance industry’s hopes for including group life insurance for the first time in legislation extending federal support for insurers after catastrophic terror attacks have suffered a serious blow.

That occurred on Oct. 17 when the Senate Banking Committee passed–with Bush administration support–a bare-bones bill that effectively extends the current program for 7 years.

Commenting on the decision, Jack Dolan, a spokesman for the American Council of Life Insurers, said, “This vote is really unfortunate, because the federal backstop is needed.”

He added that, “Adequate reinsurance isn’t available in the group market. Adding group life to the program could help boost the market, bringing more coverage to people.”

Regarding the Treasury Department’s decision to say it would support the Senate version of the backstop extension, Dolan added, “We certainly wanted Treasury’s support on the issue, but their recent comments are not surprising.”

Now, he said, “we’re focusing on a conference strategy, looking to ensure group life remains in the Terrorism Risk Insurance Act by working with supporting members in the House, as well as in the Senate.”

Dolan added that the facts are clear: “Group life insurance is a major source of financial protection for Americans. So, without TRIA, many workers will be without the financial protection they need.”

The Senate Banking Committee version was hammered out by the staffs of Sen. Chris Dodd, D-Conn., chairman of the committee, and Sen. Richard Shelby, R-Ala., ranking minority member of the committee.

The compromise bill agreed to by Dodd and Shelby and reported out by the committee makes only a few changes to the current legislation, which expires Dec. 31.

These include the 7-year extension–as compared to the current 2-year extension–as well as a provision that adds domestic terrorism to the program.

It was approved by the committee 20-1.

The only member of the committee to discuss the group life issue was Sen. Chuck Hagel, R-Neb.

“I am disappointed that the Senate bill does not include group life coverage,” he said. “Group life coverage would enhance market stability and ensure that American workers and their families continue to receive life insurance coverage in the event of a terrorist attack.”

Hagel said he would support the Senate bill out of committee, but hoped to work to ensure that group life is addressed as Congress reconciles the Senate and House bills.

The key to the fact that the bill passed by the Senate Banking Committee will likely be the template for final legislation was the administration’s decision to quickly voice support, even before it passed the panel.

Earlier, in testimony before the House Financial Services Committee, the administration had warned that if the expansive bill proposed by the House was the final product, the administration could decide to veto the legislation.

The administration in its earlier statements had established three key elements for an acceptable extension of the bill, the Terrorism Risk Insurance Program Reauthorization Act of 2007. These were that the program should be temporary and short-term; there should be no expansion of the program; and private sector retentions should be increased.

The administration’s new position was voiced in a letter sent by Treasury Secretary Henry Paulson to Dodd and Shelby.

“The administration continues to believe that any TRIA reauthorization should satisfy our three key elements; however, the administration will not oppose the version of the TRIA bill that we understand will be marked up in the Senate Banking Committee,” Paulson said in his letter.

“Should amendments be adopted that move the current bill farther from our key elements, the president’s senior advisers would recommend that he veto the bill,” the letter added.