Insurance Firms Still Feel Fallout of 9/11

Before Sept. 11, insurance premiums began increasing because rates had been artificially low and insurance companies were losing money in the faltering stock market.

Larry Shea, managing principal of San Diego-based insurance brokerage Barney & Barney LLC, said when the terrorist attacks that

Sept. 11, the largest-insured event in history, brought the storm to a head with reinsurers cutting back or stopping their coverage of insurance companies.

"The whole industry was affected by Sept, 11. There are estimates of a $50 billion loss," said Bernard Feldman, vice chairman of San Diego-based ICW Group.

According to the Disaster Insurance Information Office in New York City, organized by the insurance industry to provide information on Sept. 11 losses, claims from the World Trade Center attacks totaled $16.7 billion as of midAugust.

ICW Group provides a variety of property and casualty insurance products through three insurance companies, including Insurance Company of the West.

Workers' compensation, property and catastrophe lines were particularly affected by Sept. 11 for ICW Group.

"In the industry, on the reinsurance side, we've seen rate increases up to 50 percent," Feldman said.

Workers' compensation insurance which was expected to increase before Sept. 11 because of benefit increases imposed by the state - saw two rate increases so far this year, totaling 24 percent plus other charges, according to Shea. Barney & Barney is seeing a 50 percent rate increase on policy renewals.

Shea said some insurers are starting to get back into the workers' compensation market, which could mean improvements in the next 12 to 18 months.

Across The Board Increases

Insurance related to aircraft has also skyrocketed this year, since planes were used to cause the losses Sept. 11. Sean O'Mahoney, owner of Premier Aircraft Sales in El Cajon, said his liability insurance premium increased more than 50 percent this year, from $6,000 to $9,200.

Not only did his insurance rates increase, his insurer limited the types of airplanes he could fly, unless he attends flight school annually. That could cost $4,400 for one week.

"To sell planes, I have to be able to fly," O'Mahoney said.

Now, he has to hire a pilot to demonstrate planes he's restricted from flying or rely on the buyer to have a pilot who can test the product.

Premier specializes in small aircraft sales up to $1 million. O'Mahoney said he sells about two planes per month, usually in the $100,000 to $500,000 range.

Property insurance has also increased because of terrorism concerns after Sept. 11. High profile buildings are seeing exclusions for terrorism coverage.

Backstop legislation in separate bills by the House and Senate is being debated. In the legislation, the federal government would help pay for losses from a terrorist attack.

Shea said smaller property insurance policies are seeing 15 percent increases this year, but larger accounts are seeing 50 percent increases. He had a client with a $25 million liability policy in 2001. To get the same dollar amount of coverage, the client had to buy three separate policies in 2002.

The Mortgage Bankers Association in Washington, D.C., reported an estimated $3.7 billion in commercial property sales were killed so far this year because terrorism insurance could not be obtained. Another $4.5 billion in transactions may have been delayed or changed.

Coverage Concerns

Jon Busse, a senior vice president at Colliers International in Carlsbad specializing in investment properties, said he has not heard of any transactions that have been held up by terrorism insurance concerns.

The only concerns he's hearing on the investment side of real estate is about insuring older apartment buildings. Mold is causing some large claims to be filed, so insurance premiums are doubling and tripling.

San Diego-based Sentre Partners, a real estate services and investment firm, manages the NBC Building at 225 Broadway and the SBC Building at 101 W. Broadway in Downtown.

General Manager Tamara Richardson said property managers were budgeting for insurance increases for two years. After Sept. 11, the increases got worse.

At the NBC Building, property insurance rates increased 38 percent from 2000 to 2001, Richardson said the rate climbed 65 percent this year, mostly due to terrorism coverage.

Those expenses are recovered from tenants. Sentre may be able to make up the insurance increase in other areas of the budget. In 2001, the rate increase was paid for by savings on utilities that occurred because of conservation and utility upgrades.

Rancho Santa Fe-based insurance consultant Andrew Barile said construction companies are being hit hard.

Lawsuits for construction defects are so numerous that almost all insurance companies will not write liability policies for new construction projects. With the losses from Sept. 11, companies have less capacity to insure customers and are giving even less coverage to construction companies.

Barile said contractors have to took at alternatives to regular liability policies. Homebuilders are also having a difficult time getting insurance coverage for housing developments.

Construction companies could pool their resources to start their own insurance company, form a risk retention group or work together as one insurance purchasing group, Barile said.

Insurance agents have to work harder to find new options for their clients. "For so long the market has been soft, so the culture has to change," Barile said.

High prices and limited coverage options will likely continue for two or three years, Barile said. "Nothing happens quickly in our industry except the price increases. New product has to be created - that takes a few years," he said. Feldman said it's likely to take another year or two for the insurance industry to recover from Sept. 11 and for rate increases to slow or stabilize.