NEW YORK (CNNfn) - Insurance claims from the World Trade Center attack could reach as much as $30 billion, and Lloyd's of London disclosed Thursday it has considerable exposure to the hijacked airliners and the WTC.|
Chubb Corp. Chairman Dean O'Hare said costs from the destruction could be in the $25 billion to $30 billion range. But a Chubb spokesman later admitted it still is too early for an estimate of the damage.
Industry groups have a much smaller estimate of the insurance costs. The National Association of Insurance Commissioners Wednesday pegged the loss at $10 billion.
"All insurance policies – whether life, health or property – generally will cover the events that occurred [Tuesday]," the NAIC said.
However, many believe that insurance costs stemming from the terrorist attack on New York's World Trade Center will reach into the billions of dollars, and could even surpass the last huge disaster, Hurricane Andrew of 1992. Insurers paid over $19 billion for that natural catastrophe.
The WTC destruction will easily overtake the $775 million in claims caused by the 1992 Los Angeles riots, which ranked as the most costly man-made U.S. disaster to date, the New York-based Insurance Information Institute said.
Claims from the WTC attack will include property losses such as the destruction of the WTC; business interruption claims from companies damaged or prohibited from opening; workers compensation for employees killed or injured on the job; health insurance for injuries that were not work-related; life insurance for those killed; and auto insurance for vehicles damaged or destroyed by the attack.
Lloyd's of London, the world's biggest and oldest insurance market, confirmed Thursday it has substantial involvement in the insurance of United Airlines, American Airlines, and the World Trade Center.
"Because of the evolving nature of the situation and the numerous variables, Lloyd's considers it unwise to attempt to quantify its own exposure at this time," the insurer said.
Lloyd's cautioned Wednesday that any estimates of insurance costs from the attack are "deeply flawed," saying it is too soon to calculate the losses.
Insurers most impacted
The industry most impacted by the WTC destruction are insurers. Both U.S. and international providers are expected to share the costs.
Those that provide commercial coverage to large corporations, such as American International Group Inc. and Chubb Corp., will feel the brunt of exposure, analyst Bijan Moazami, of Friedman Billings Ramsey & Co., wrote in a research brief Wednesday. Large catastrophe reinsurers like ACE Ltd. and PartnerRe Ltd. (PRE) will also be affected, Moazami said.
Bermuda-based ACE (ACE: Research, Estimates), through its subsidiaries, underwrites a significant amount of commercial lines and also provides catastrophe reinsurance. The insurer also has potential exposure through its Lloyd's business. "The picture turns ugly rapidly," Moazami said.
Bermuda-based PRE (PRE: Research, Estimates) is likely exposed to losses stemming from the four airplanes lost in the sky and, as a significant catastrophe insurer, PRE has to absorb a portion of the massive losses at WTC.
"PartnerRe's earnings are likely to fall apart this quarter," Moazami said. "The good news, however, is that September 11 events are likely to help continue hardening the catastrophe reinsurance markets for the Jan. 1 renewal season."
Warren, N.J.-based Chubb (CB: unchanged at $66.47, Research, Estimates), as a major provider of insurance to large corporations, has significant exposure in the southern tip of Manhattan, and its third-quarter earnings will be impacted, Moazami said.
New York-based AIG (AIG: Research, Estimates), the largest commercial lines provider in the United States, will have significant exposure on the property and liability side. But the insurer's recent buy of American General Corp. will help it offset losses. AIG said Wednesday that the pretax losses are expected to about $500 million from the WTC attack.
Trade will resume Monday and shares of large insurers, like Chubb and AIG, will likely open down. But most are seen withstanding the loss.
"[The attack] will hurt insurers but they can take the hit," said analyst Kenneth Billingsley, of Friedman, Billings, Ramsey.
The destruction of the WTC will likely lead to a rise in rates for commercial policies, said analyst Matt Mosher of A.M. Best Co.
In January, reinsurers will be re-pricing many of their contracts and will now look to charge insurers more, similar to the rate hike experienced after 1992's Hurricane Andrew.
"This will flow down and affect consumers," Friedman's Billingsley said.
An act of war
Insurers generally do not cover damages from war and some commercial policies may also not cover damage from terrorist's attacks. But such "exclusions" are generally limited to European insurers.
However, President Bush's comment on Tuesday, where he categorized the WTC destruction as an "act of war," could lead some insurers to try to deny coverage. Still, the likelihood of this happening is highly unlikely, an industry watcher said.
"Only Congress can declare war and this has not happened," the person said. "There is not going to be a problem with claims here and insurers will be in a bad position if they try to avoid claims."
But if an insurer does deny a claim based on a "war" exclusion, they should contact their state insurance regulatory, a spokeswoman from National Association of Insurance Commissioners said.
"This would be disastrous P.R. for insurance companies," an industry watcher said.
Exclusion policy likely
Until this week, terrorism occurring in the United States was deemed very unlikely. But insurers may be looking to offset the rise of violence and exclude coverage for terrorism in future policies, analysts said.
One option is to provide two forms of coverage for high risk areas. One, a traditional policy, will exclude coverage of terrorist acts, while a second will price terrorism in, an industry watcher said.
Structures that are a high risk, like the Statute of Liberty or Sears Tower in Chicago, will probably have to pay more if a terrorism exclusion is not included in their policy, analysts said.
"Icon buildings will be far more likely to have exclusions than a standard commercial building," said A.M. Bests' Mosher.
But premiums will likely surge for all businesses since ever building will be at risk. Structures that are near a high risk area, such as those buildings surrounding the WTC, would be affected by terrorism.
"Even if not a specific exclusion, a portion of a premium will go to cover the risk of terrorism, however small. And you may not even notice it," Billingsley said.