ISO Terror Risk Analysis Scored

Using the AIR modeling, ISO has proposed a three-tier system for cities that would put New York with Washington, D.C., Chicago and San Francisco in the top tier or riskiest category compared with the rest of the nation.

Boston, Los Angeles, Houston and Seattle would be in the second tier and all other cities would be in the third tier.

ISO's rate proposal, which has already been criticized by the Washington, D.C. Insurance commissioner, has not been formally filed for any of the states with cities in the top tier, said ISO spokesperson Dave Dasgupta.

"There is discussion with regulators. They have asked for additional information," said Mr. Dasgupta, who said a filing should come shortly in the states with cities in the top tier.

Not waiting for ISO action, numerous speakers attacked the proposals at a recent hearing by the New York Assembly Insurance Committee.

New York Insurance Superintendent Gregory V. Serio, testifying before the committee said the ISO proposal is "deeply troubling" and would place New York's rates 150 percent above other cities.

Mr. Serio, at the hearing, said his department is looking for loss experience. "We don't allow modeling in New York."

Lacking terrorism data, he said some rate proposals may rely on data from a maximum loss of a World Trade Center event.

Participants at the hearing, consisting of representatives of insurer trade groups and consumer organizations, said that while commercial premiums for some individual properties are going up astronomically, there has generally been a moderation in terrorism rates for commercial properties. Some saw a problem developing in coverage for residential highrise structures.

Assemblyman Alexander "Pete" Grannis, D-Manhattan, who chairs the Insurance Committee noted that the borough of the Bronx, which lacks a single "trophy" building for terrorists to target, has seen substantial increases.

It might be the industry's reaction to unfavorable verdicts from Bronx juries, he suggested.

David Isenberg, president of the Professional Insurance Agents of New York State said his membership has noticed a price impact because some carriers have left the commercial property line and because, in the past, there had been underpricing.

AIG's Mr. Thomas, who did not attend the meeting, but spoke to NU in a phone interview, said the approach used by ISO's AIR is a static analysis and the terrorist threat is a dynamic one. If terrorists "perceive a target will be difficult to hit, they will move on."

As the nation's improves its security, terrorists will seek targets different than the 10 that ISO sees with the highest risk, he said.

AIG takes issue with ISO over New York City because it "essentially says every owner of commercial property in the five boroughs should pay the same price, which suggests every building is at equivalent level of risk."

Mr. Thomas had one caution, "If we go nuclear, the whole equation will change," he noted, suggesting that the impact of a nuclear attack could extent beyond a limited terrorism site.

The ISO concept has partial acceptance from ACE Ltd. in Bermuda. Spokesperson Lilla Zuill said the company "is comfortable using those rates in some cases, and in some cases, we would choose not to follow.

Christine Olli, the Assembly insurance committee's associate director, said the record is still open for comments concerning the impact of the federal Terrorism Risk Insurance Act.