Property Owners Bracing for Insurance Rate Hikes

Property insurance premiums were expected to increase this year due to an already tight insurance market.

Because of Sept. 11, some local real estate owners and managers have seen their premiums increase even more than originally anticipated.

Cybele Thompson, president of the San Diego

Before Sept. 11, a 20 to 30 percent increase was expected for the La Jolla Executive Tower. Now, a 40-percent increase is expected when the building's policy is renewed in June.

"It's a big concern because it's a passthrough to our tenants, and most of them are small businesses," Thompson said.

While electricity rates finally decreased this year, insurance rates have taken over any relief that may have been provided, she added. Insurance companies are increasing premiums to cover the estimated $50 billion to $90 billion cost of the Sept. 11 attacks, and protect themselves in the event of another attack.

Many reinsurers, which insure insurance companies, have announced they would no longer cover terrorism damage.

In response, many insurers across the country have not renewed policies, exclude terrorism coverage, provide it as a separate policy for a high premium, or include it in policies with much higher premiums to cover the new risk.

In other cases, insurers have only offered partial coverage, leaving property owners to layer policies from multiple insurers in order to have full coverage.

So far, California's Insurance Commissioner Harry W. Low has not allowed insurance companies to exclude terrorism coverage from their policies.

Some companies that renewed policies Jan. 1 bypassed major increases because insurers were still deciding how to cover terrorism, according to Warren Johnson, a first vice president in the property and casualty department at San Diego-based Driver Alliant Insurance Services.

"It's not much of a concern here right now, but it's going to be a concern because of the way insurance works," he said. "It's overhyped right now, but reinsurers are the ones who set the rules."

Scott Bedingfield is a principal and executive vice president at Cavignac & Associates, a San Diego-based insurance brokerage. Bedingfield said underwriting for terrorism coverage is new for insurance companies. They now have to look at whether a building or its tenants could likely be a target for terrorism.

Insurers are in the process of rating cities based on their risk of a terrorist attack. Bedingfield said San Diego is not considered as high a risk -as New York City, Washington, D.C., or even Chicago. However, he noted, the city has a large military presence and major tourist attractions.

"If you're a lender financing a high-rise condo development Downtown, it might be a bigger issue," Johnson said. "If they see it as a terrorist target, they may demand terrorism coverage."

Brad Orr, president of John Burnham Insurance Services of San Diego, said if the state demands that insurers provide terrorism coverage, many insurers could end up leaving the state to avoid the costs.

Prices here would go up because fewer providers would be available to offer competitive premiums, Orr said.

Burnham Insurance Services represents JMI Realty in insurance negotiations for the hotel, office, retail and residential properties that will build around the new Padres ballpark under construction Downtown. So far, the properties are not being treated differently in terms of terrorism risk than other projects.

A number of national trade associations have come together to create the Coalition to Insure Against Terrorism to encourage Congress to pass a national terrorism insurance plan. The National Association of Real Estate Investment Trusts is a founding member. Many real estate -related associations are also involved.