SECTION: BUSINESS; Pg. M-01

LENGTH: 1441 words

HEADLINE: Attacks pinch insurers Industry wants aid to escape future losses and liability

BYLINE: By Tom McGhee and Mark P. Couch, Denver Post Business Writers,

BODY:
Insurance companies say that they will pay the sky-high  claims associated with last month's terrorist attacks but that  future attacks won't be covered unless taxpayers help foot the  bill.

Business lobbyists, whose constituents fear such liability,  are mobilizing support for a future government bailout of the  insurance industry.

'It's clear that some version of government backstop  protection is needed,' said Bruce Josten, executive vice president  for government affairs for the U.S. Chamber of Commerce.

The real estate industry, heavily dependent on capital to  develop property, is starkly behind casualty and property  underwriters in their drive for government assistance.

'Insurance is necessary for financing and liquidity,' said  Tony Edwards, general counsel for the National Association of Real  Estate Investment Trusts, a Washington, D.C.-based trade  association. 'Lenders require insurance, rating agencies require  insurance, business partners require insurance,' Edwards said.  'Without it, signature properties like hotels and malls will not  get built.'

The dire warnings don't faze opponents who say an industry  with $ 300 billion in capital should be able to handle any future  losses without reaching for a government handout.

'There's a lot of capital in the world. Let the market  develop its own plan,' said David Schiff, editor of Schiff's  Insurance Observer, a newsletter that circulates among  institutional investors and others.

Some members of Congress, including House Majority Leader  Dick Armey, also are skeptical about picking up the tab for an  industry that routinely deals in risk and has the power to raise  premiums.

Fallout from the Sept. 11 attacks has sharply bumped up  commercial insurance rates, and premiums for auto, home and other  nonbusiness lines are also expected to jump slightly.

Major reinsurers - the firms that pick up a portion of an  insurance company's risk for a fee - have said they won't pay  damages caused by terrorists in the future, said Robert Hartwig,  chief economist for the Insurance Information Institute.

'The industry never wants to have huge unpredictable losses,'  Schiff said. 'You want something you can try to measure.'

And the insurers want help fast. Most contracts between the  insurance firms and reinsurance companies expire on Jan. 1, said  Julie Rochman, a spokeswoman for the American Insurance  Association.

Terrorists have handed the insurance industry its costliest  disaster in history.

Total claims from the attacks could hit $ 58 billion by the  highest estimate. Even the lowest estimate for the damages - $ 30  billion - is about double the $ 15.5 billion paid out for Hurricane  Andrew. The 1992 storm sacked Dade and Broward counties in Florida  and was the largest insured loss until Sept. 11.

More than 100 insurance companies and reinsurers have  announced they will have attack-related losses.

Primary insurer New Jersey-based Chubb Corp. expects to lose  between $ 500 million and $ 600 million.

St. Paul Insurance of St. Paul, Minn., expects $ 700 million  in losses.

Warren Buffett's Berkshire Hathaway, which owns the biggest  U.S. reinsurer, has said its share of claims will be about $ 2.2  billion.

Reinsurer Munich Re is facing $ 1.6 billion in claims.

Lloyds of London expects an almost $ 2 billion hit.

Supporters of a government bailout argue that mayhem wreaked  by terrorists can cause losses too large for one industry to bear.

'There are types of exposure that are simply beyond the  capabilities of private insurance to deal with,' said Joseph  Belth, a retired business professor at Indiana University and  publisher of The Insurance Forum.

Devastation caused by the attacks included the two 110-story  towers, several smaller buildings, four airliners and a piece of  the Pentagon. Casualty insurers will pay the bulk of claims on all  but the government-owned Pentagon, which isn't covered by insurance.

'The exposure is catastrophic, and the insurers have finite  resources,' Belth said.

Industry groups - including the AIA - have taken their plea  to Capitol Hill, and the House and Senate are holding hearings on  the matter.

Even the Consumer Federation of America - a watchdog group -  believes a backup plan is needed, said Bob Hunter, director of  insurance for the Washington-based organization.

But Hunter said separate proposals floated by the  administration and the industry would unfairly fall on the  shoulders of taxpayers.

The CFA has proposed a plan that would help insurers manage  their losses through long-term federal loans.

'The taxpayers should ultimately not pay this cost, Hunter  said. 'It should be borne by the policy holders.'

Industry representatives have suggested a risk pool similar  to one set up by Great Britain after Irish Republican Army  bombings in London in 1993 and 1994.

There has never been a claim against the fund, Hartwig said,  suggesting that the industry might never need taxpayer help.

The White House has proposed another alternative that would  make the government liable for 80 percent of the first $ 20 billion  in costs in the first year.

Taxpayers' share of costs would decrease gradually through  2004 and then vanish.

If there were no terrorism incidents during the period, there  would be no government payout.

Last week's closing of part of the Capitol complex after  anthrax was found has delayed congressional action, Edwards said.

'It's hard to get a discussion going when you can't even  meet,' he said.

But Josten believes the issue can't wait much longer.

'This is an economic fact of life, this is an economic issue.  If this isn't done swiftly, no one is going to have reinsurance,'  he said.

For now, the economic repercussions of the attacks on the  insurance industry are sparking sharp increases in commercial  insurance rates.

Higher costs and weaker returns on investments drove rates up  an average of 10 percent to 15 percent at the beginning of the  year, Hartwig said.

Businesses that renew or buy policies in the post-terror  world are paying more - in some cases double the earlier  increases.

Airlines, shipping companies and other firms whose properties  are perceived as inviting targets are likely to see rates jump as  much as 100 percent, Hartwig said.

Consumers are not out of the clear, either. The rate  increases will spill over into auto, homeowners and small-business  coverage, though the rise is expected to be less dramatic, said  Julie Rochman, a spokeswoman for the American Insurance Association.

Rates for homes were expected to rise 6 percent before the  attacks. The terrorist acts could add a few percentage points to  the price of homeowner and other insurance, Rochman said.

'Losses drive rates,' she said. 'There will be a ripple  effect on all lines of insurance.'

The increases follow a period of relative stability in rates.

For most of the 1990s, insurers' investments in stocks,  loans, real estate and other ventures performed well and the  companies kept premiums down.

As the economy cooled off, so did those investments.

At the same time, the cost of medical care continued to trend  upward, contributing to increases in premiums for workers  compensation.

And soaring jury awards fueled higher rates for major  property and liability coverage, Hartwig said.

The attacks have increased demand for insurance at a time  when claims are expected to cut deeply into the industry's  capital.

'The supply was reduced and at the same time people are  increasing their demand. They recognized that they are  under-insured,' Hartwig said.

Increased demand coupled with pinched supply is a sure recipe  for price hikes.

Further inflating the cost is the fear that more attacks may  be on the way - an idea that has been bolstered by warnings from  the president and other members of the administration.

Businesses report they have been digging deeper to pay  premiums.

Lowe Enterprises was hit with property insurance increases of  between 30 percent and 50 percent after the attacks, said Jonathan  Bush, executive vice president of acquisitions in the Los  Angeles-based company's Denver office.

'We haven't been collecting for terrorism,' Rochman said.  'Now we know that we live in a different world, we have become  members of this club of nations that lives with terrorists.'



GRAPHIC: PHOTOS: AP file photo In 1998, Hurricane Georges did $ 2.9 billion in damage, about a tenth of the lowest estimate from Sept. 11. Oakland Hills, Calif., residents flee a 1991 wildfire that destroyed about 3,000 homes and caused about $ 1.7 billion in damage. The Denver Post Insurance companies have paid billions for past disaster

LOAD-DATE: October 29, 2001