9/11 Industry Loss Estimates Narrow

By Michael Ha

NU Online News Service, Sept. 5, 2003, 9:50 a.m. EDTAs the second anniversary of the 9/11 attacks approaches, some estimates of losses for the property-casualty insurance industry loss estimates are trending downward. But significant wildcards remain that could impact overall insured costs down the road, experts say.

New York-based consultancy Tillinghast-Towers Perrin, which stopped formally updating its 9/11-related loss estimates last year, told National Underwriter that its informal loss estimate for p-c insurers is down by some $10 billion this year.

“Our estimate for property-casualty was $38 billion to $50 billion last year. And we are not formally tracking this any more, but I would say that our estimate today would probably be closer to a range of $25 to $40 billion,” commented Stephen Lowe, a managing principal at Tillinghast.

The main reason for the downward change, Mr. Lowe noted, is that initial estimates reflected an estimated 6,000 fatalities. “But by early 2002, that figure was reduced to around 4,500, and the best count today suggests that the fatality is a little more than 3,000.

So a significant portion of the reduction is just reflecting a fewer fatalities than originally thought,” he said.

Still, there are a number of wildcards in the deck that could change the loss-estimate landscape, he said, mentioning two factors in particular: future litigation and the possibility of more workers’ comp claims relating to occupational diseases.

“For workers comp, the issue is whether the dust from the World Trade Center site was injurious. If it was, theoretically, virtually everyone who was in the lower Manhattan at that time could presumably be eligible for injury claims,” Mr. Lowe said.

Those claims, he explained, could either be in the form of workers’ comp claims against their employers, which is a no-fault system, “or, as was the case with asbestos, those claims could take the form of liability claims against other parties.”

The insured loss estimate from the Insurance Information Institute in New York is also in the process of getting revised downward. Robert Hartwig, I.I.I.’s senior vice president and chief economist, said his long-standing estimate for insured losses, including life insurance, was $40.2 billion, “but I am now in the process of revising that and plan to complete it by Sept. 11. My expectation is that the revised ultimate-loss number will be around $39 billion, with about $37.5 billion or so likely to be due to the p-c side. So it will be down slightly.”

One important development that Mr. Hartwig is tracking is the number of claims that have been filed with the 9/11 victims’ compensation fund, which eligible families can tap into for an assigned compensation after giving up their rights to sue other parties.

“So far, only about one-third of eligible claimants–with respect to death claims–out of the 3,016 death claims that exist, have been filed and compensations have been sought,” he observed. “And the deadline is approaching, so the question arises: Does the fact that only the minority has filed for compensation at this point mean there will be an eruption of litigation?”

He added that he still expects this claims ratio to rise from about one-third today to at least one-half by the deadline time, originally Dec. 22 but extended by the New York state in cases for filing wrongful death claims until March 10, 2004.

“But this means that there is a possibility of large-scale litigation, and this would be large-scale both in terms of the number of claimants and also in terms of the scope,” Mr. Hartwig said.

Michael Murray, vice president and assistant vice president for financial analysis at Insurance Services Office Inc., echoed Mr. Hartwig’s concern.

“Our current estimate of p-c losses from 9/11 for all insurers worldwide on a direct basis is somewhere between $30 billion and $50 billion,” he said. “But what people are realizing is that there are still a number of wildcards out there. There maybe a lot of people who are using the time available before the deadline to make up their minds. It’s a complex decision.”

Mr. Murray also added that especially the high-net-worth people are the ones “who might economically hope to get more from the court than from the compensation fund guidelines,” which could drive up the loss value.

“The average award for the deceased victim from the federal victims’ compensation fund has been just a shade below $1.6 million. So every thousand awards, at $1.6 million, are $1.6 billion,” Mr. Murray noted. “Presumably, people who are going to court are expecting to get more from litigation than from going to the federal compensation fund.

So there is conceivably multiple billions of dollars involved there.”

Mr. Hartwig said: “There are lots of parties that are limited in liability to the amount of insurance they had on Sept. 11. So it’s likely all of these parties, such as airlines, the Port Authority of New York/New Jersey, would be sued to the limit of their liability.”

But in addition, one could see litigation branch out into many areas such as the airline manufacturers, designers of the World Trade Center and many others, Mr. Hartwig added.

“Litigation could include companies that had supplied products that were in the World Trade Center that were combustible. You can name potential targets and there would be no end to that type of litigation.”

In addition, there are, of course, the outstanding litigation cases that could substantially boost the overall insured costs. On the property side, the two big lawsuits are the one-versus-two occurrences dispute from the World Trade Center leaseholder Larry Silverstein, which could add $3.5 billion, while the recent case regarding Deutsche Bank building near the WTC site and the allegation of environmental pollution in the structure could add another half-a-billion dollars.

“Just these two are a lot. I mean, that would be 10 percent of the total cost,” Mr. Hartwig said.