Insurance Costs Soar Property, Casualty Firms Might Raise Prices 12 to 50 Percent, Analysts Say
Comerford, Mike, Daily Herald (Arlington Heights, IL)
Byline: Mike Comerford Daily Herald Business Writer
Area businesses are in the process of renegotiating their insurance coverage and finding still more evidence of how the Sept. 11 terrorist attacks is having an effect on the basic costs of doing business.
"In the short-run, there's going to be substantial increases in every line of property and casualty insurance for business," said Jerry Rosenbloom, professor of insurance and risk management at University of Pennsylvania's Warton School.
"It could get even worse," he said, "because the big unknown is what next is going to happen?"
As Congress and the Bush administration haggle over back-up funding for the insurance industry in the event of terrorist destruction, insurance companies are hiking their property, casualty and reinsurance premiums to recoup losses.
Between 50 percent and 70 percent of all domestic reinsurance contracts are currently being negotiated for a Jan. 1 start date and the initial reports are that businesses can expect eye-opening rate hikes.
Property and casualty insurance companies are likely to raise rates 12 to 50 percent, Rosenbloom estimates.
"I've heard of rate hikes of up to 100 percent," he said.
The reinsurance industry, which specializes in taking some of the catastrophic risk from primary insurers, will be fueling much of the added costs to premiums, he said.
Some reinsurance companies are taking the formerly standard terrorism clause out of next year's contracts. Clauses for interruptions of business also are likely to be pricier.
An average estimate for insurance rate hikes for businesses cannot be determined, industry analysts said, because contracts are still being negotiated.
However, most industry-watchers agree that companies already rocked by the recessionary economy should prepare for unexpectedly heavy insurance costs.
"After any disaster, like Hurricane Andrew or the California earthquake, the immediate reaction was to raise rates too much," said Robert Hunter, director of insurance at the Consumer Federation of America, a consumer advocacy group.
"I certainly don't think reinsurance rates should be going up as much as they are," Hunter added.
Estimates of the damage to the insurance industry from the September terrorist attacks vary between $40 billion and $70 billion, making it the worst insurance loss in history.
Three separate initiatives in Congress are aimed at limiting those losses and protecting the industry if there are more terrorist-related losses.
Hunter said the coming weeks will be critical for the industry as Congress decides on how to set up financial safeguards for the industry. The initiative favored by the Bush administration would create a government-sponsored insurance industry pool to cover terrorist-caused losses, up to a cap of $100 billion. …