NEW YORK, Aug 29: September 11, 2001, was a bad day for insurers; but every day since has been cause for celebration.
As the one-year anniversary of the destruction of the World Trade Centre approaches, insurers are looking back on 12 months of solid price increases in nearly every line of business — and they can expect more.
Premiums crept up slightly for a year or so preceding Sept 11, but the massive loss from that day — now estimated at $25 billion to $40 billion — opened the floodgates for price increases.
Most companies have been slammed with 20 per cent to 30 per cent increases on insurance bills in the past 12 months, according to the Council of Insurance Agents and Brokers, with larger price spikes for customers with skyscrapers or other “target” properties.
To protect themselves from another catastrophic payout, insurers have excluded cover for “terror” attacks in most US states, and dropped maximum coverage in others. Buoyed by the price rises, insurance stocks have fared better than most in the post-Sept 11 Wall Street carnage.
The customers paying the higher premiums, and sometimes losing “terrorism” coverage, are not happy.
The cost of risk for US companies — which largely tracks the cost of insurance — will rise to $7.22 per $1,000 of revenue this year, a recent RIMS study showed. That is up from a low of $4.83 in 2000, but still below the $8.30 of 1992, the last time prices rose sharply throughout the industry.
The US insurers, who lost $53 billion underwriting policies last year, need a decent level of return.
As insurers and their customers squabble over prices, the fundamental issue remains whether the market was fundamentally changed by Sept 11, or whether that date simply marked the start of a new pricing cycle.
Statistically speaking, the risk of a terror attack on the United States has not changed since last year, but the perception of the risk has. Insurers were giving away terror coverage for free before Sept 11, and must now cut their exposures and charge an appropriate rate, sources say.
If there is another terror attack, insurers have carefully limited their maximum exposure, and may yet get government support. If there is not, insurers will rack up huge profits this year.—Reuters