Beware!: Business Insurance Rates Rise; Start Your Shopping Today. (Resource Guide)

Article excerpt

Terrorist attacks inside the borders of the continental U.S. Terrorist earlier this year have triggered insurance price increases across the nation. Like it or not, these rising costs will be handed down to you, the customer, whether you own a large or small business. Industry experts predict pre-tax profits for the companies in the Standard & Poor's 500 stock index will drop by an average 2.5 percent in 2002 because of higher insurance prices.

Insurance companies took a $40 billion hit in the wake of the events of Sept. 11th. To recoup, they will have to raise prices across the board. And the soaring demand for insurance policies -- caused by threats of future terrorist attacks -- means that prices will go up even more.

Congress may even venture into the fray by creating a national fund that would provide coverage for terrorism-related claims. But the White House has proposed that taxpayers pick up 80 percent of the first $20 billion in costs from any terrorist acts next year, and then gradually less until industry reserves are again adequate. That more likely scenario avoids creation of a new insurance bureaucracy.

Insurance companies, meanwhile, have three ways that they can control the situation. One, they can ask for rate increases; two, they can file requests to exclude coverage for terrorism-related claims from their commercial policies; three, they can require higher deductibles.

Higher insurance prices are taking effect immediately for commercial customers as renewals come up toward the end of the year, according to a report in the New York Times. "Increases are far from uniform and are, in many cases, extreme," the newspaper said. "Customers considered the most likely to file claims -- based more on their records and their perceived riskiness than on the terrorism threat -- face the highest increases."

"This industry needs to preserve the ability to keep doing what it has been doing for years," says Bernard Hengesbaugh, CEO of CNA Insurance Companies, Chicago, Ill. "But now we have to consider a series of threats that are beyond the industry's ability to create a product to cover. If we're to be available for another disaster like this, then we may not be available for a fire at the GM or Chrysler plant."

In addition, the paper said, "many are providing full coverage to only the least risky customers, offering others lower coverage limits, higher deductibles, or prices they know are likely to be unacceptable."

War, terrorism and catastrophes

"Acts of war" are normally excluded from insurance coverage due to the catastrophic nature of war risks. "Catastrophic" risks are those that are so severe that a major occurrence could threaten the solvency of insurance companies. …