Insurers Pass Terrorism Costs Along
OMAHA, Neb. (AP) -- Insurance companies rocked by claims from the Sept. 11 terrorist attacks are recovering, but the cost will likely be passed onto the nation's businesses in the form of increased premiums for workers compensation and property insurance.
Hardest hit by the rise in insurance rates, analysts say, will be the airline, shipping and energy industries, as will the owners of high-profile buildings.
Consumers, however, including those with home and car insurance policies, shouldn't feel the pinch, analysts say, because companies suffered the primary loss and face the largest risk.
"We are hearing reports of dramatic cost increases in workers compensation and other property casualty lines," said Eric Oxfeld, president of the business lobbying group UWC-Strategic Services on Unemployment and Workers Compensation.
High insurance costs for businesses could lead to higher prices on some goods and services and possibly job layoffs, Oxfeld said.
The insurance industry insists that it needs government help to absorb another hit or series of hits as large as the payouts required by the Sept. 11 attacks.
Destruction of the 110-story twin towers in New York's World Trade Center and damage to the Pentagon in Washington will bring an estimated $50 billion in payouts by U.S. companies, the largest insured loss ever.
Lloyd's of London estimates its losses at $5.36 billion, and Omaha-based Berkshire Hathaway estimates its insurance companies will pay out $2.2 billion. American International Group of New York puts its pretax loss at $820 million.
Stock prices for Berkshire Hathaway and American International dropped after the attacks as investors feared high losses. Those stocks have rebounded since the companies have said they can manage the large payouts. Investors also know that increases in insurance rates can bring higher profits.
"The initial reaction is `Oh my God, these guys are going to have to pay a ton of money,'" said Anna Dopkin, portfolio manager of T. Rowe Price Financial Services Fund. "But the other side is an accelerated rise in insurance rates."
For the first time, major reinsurance companies, which assume part of the risk covered by insurers and which had not excluded terrorism in their policies, are struggling to take into account the costs of terrorism. …