A weakened insurance industry will raise premiums on a wide range of business policies in the wake of the Sept. 11 terrorist attacks, but consumers may also feel some indirect effect from what may be the largest insurance disaster ever.
Premiums for auto and homeowners policies, which were already on the rise before terrorists flew hijacked airliners into the World Trade Center and the Pentagon, may continue to inch upward as insurers struggle with lower profits and higher costs, analysts said.
Insurers will be more aggressive about raising rates, and less likely to tolerate losses, now that they are faced with $30 billion or more in claims from the attacks, said Brian Sullivan, an independent insurance analyst in Laguna Niguel and publisher of insurance newsletters.
"Consumers won't be able to look at an 8% hike in their auto insurance premiums and say, 'Ah, that's from the World Trade Center,' " Sullivan said. "But when you take $30 billion in capital out of the marketplace, it's got to come from somewhere."
Even before the attacks, insurers were struggling with higher claims costs in many lines of insurance. The costs of auto repairs and medical treatment have climbed, as have costs related to asbestos claims, insurers said. At the same time, a falling stock market has hurt many insurers' earnings. Insurers invest the premiums they receive from policyholders to generate income.
The attacks already have led to higher insurance expenses for airlines. Aviation insurers raised premiums and drastically limited terrorism-related coverage for airlines, which has forced governments around the world, including the U.S., to step in as insurers of last resort.
Meanwhile, commercial property and liability insurance and coverage for business interruptions is all but certain to become more expensive in New York, while "icon buildings" in other major cities such as the TransAmerica building in San Francisco or the Sears Tower in Chicago are likely to be more costly to insure, said Robert Hartwig, chief economist for the Insurance Information Institute, a trade group in New York.
How insurance will be affected outside New York is less clear, although analysts at Standard & Poor's have predicted widespread premium increases for business insurance. Insurers typically share some of their risks with large reinsurance companies, which are expected to pay out billions in the wake of the attacks.
