Attacks Send Insurers Back To Square One
Seattle
The terrorist attack on the World Trade Center was more than just the single largest loss in the history of the insurance industry. It may force insurance companies to redefine their mission and examine whether they can provide adequate amounts of protection for their customers.
Joseph P. Brandon, the chief executive officer of GeneralColonge Re, said that the events of Sept. 11 will bring providers back to the basic fundamentals of insurance–to provide transfer of risk, even if it is in a world that offers no guarantees.
When finally settled, the attacks will represent the largest claims ever filed in the areas of commercial property damage, life, workers compensation, health and business interruption insurance, Mr. Brandon said here at the meeting of the Malvern, Pa.-based Chartered Property Casualty Underwriters.
Primary, as well as reinsurance, carriers will be forced to establish entirely new standards for underwriting and to revise their own definitions of "worst case scenario."
The result will be higher rates in virtually every area of insurance as companies scramble to recover from the one-time loss and rebuild decimated surplus accounts.
Gregg Hanson, president and chief executive officer of Wawanesa Mutual Insurance Co. in Canada, predicted that rates worldwide could double during the first quarter of 2002, as underwriters attempt to estimate risk using an entirely new set of variables.
"We assume risk for a living. Risk will be allowed to accumulate as companies search for more capital," Mr. Brandon said. "Insurance companies will be looking for much higher returns on their investment to dig out from under a $30-$40 billion short-term loss."
Mr. Brandon and Mr. Hanson were two of five prominent insurance executives to take part in a panel discussion on the Impact of Terrorism on the Insurance Industry. The topic for the panel was changed just weeks prior the to the meeting from the original topic of "Business Without Borders" in the wake of the September attacks.
Mr. Brandon received an ovation for his proclamation that insurance companies need to return to the business they know best, and not rely on investments and cost management in order to turn a profit. The fundamental responsibility of an insurance company is the ability to underwrite at a fair price, he said.
Donald J. Hurzeler, the president and chief executive officer of Zurich Middle Markets, said that the insurance industry can, and will, survive the losses from the devastation in Manhattan. But he called on the federal government to declare any future significant event an act of war, if only to protect the interests of the industry.
Many of the larger buildings in the country, as well as large gatherings of people, could go uncovered if the federal government is successful in pushing through its current proposal that would make insurance companies liable for the first $10 billion in losses from future attacks, he said.
"That would make the government responsible for a percentage of infinity," Mr. Hurzeler said.
The panel members agreed that insurance companies will have to invest heavily into training and claims to prove to the public that they are still sensitive to the needs of clients. The consensus of the executives was that too many good people and resources were drained out of both departments over the past years as insurance companies became enamored with technology and financial services as new sources of income.
"We need to ensure the role of insurance," said Michael McGavick, the recently-named president and CEO of SAFECO in Seattle. "This industry cannot rely on exclusions."
How companies react to claims will be a good barometer of how well the public will accept inevitable exclusions that will be included when policies are renewed, said Gregory Maciag, president and CEO of ACORD in Pearl River, N.Y. He described the World Trade Center disaster as an opportunity for the insurance industry to make up for past blunders during large-scale disasters.
Mr. Hurzeler reasoned that the processing of claims from the World Trade Center could improve the image of the entire industry, or simply reinforce the poor image earned during past disasters. He specifically mentioned the actions of insurance companies that pulled out of Florida after Hurricane Andrew and the political turmoil that resulted from the Northridge earthquake in California.
"We have the opportunity to change all that," Mr. Hurzeler said boldly.
Zurich lost four employees on Sept. 11 who were employed at One Liberty Plaza, directly across the street from the World Trade Towers. Many employees have expressed reluctance to return to the same office building when emergency workers have cleared the area for occupancy.
Dan Aznoff is the former editor of the National Underwriter publication Insurance West. He is now a freelance writer in the Pacific Northwest.
Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.
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