SECTION: BUSINESS; Pg. C1

LENGTH: 821 words

HEADLINE: Terrorist attacks pressing insurers;
Commercial rates likely to rise in the wake of big NYC losses

BYLINE: Mary Vanac, Plain Dealer Reporter

BODY:
The World Trade Center disaster could cause the price of commercial insurance to double or triple next year - even for Northeast Ohio businesses and their insurers that had no direct loss from the terror attacks.

That's because a handful of worldwide reinsurance companies, which share insurance risk with primary insurers, are getting hit with claims that could top $60 billion.

Reinsurers, the likes of General Re Corp., which is owned by billionaire investor Warren Buffett's Berkshire Hathaway Inc., are expected to pass the losses to their client insurance companies by raising rates and limiting future coverage. The insurance companies, in turn, would pass the higher rates and limits to clients. Local businesses, some of which are seeking greater insurance coverage since the terrorist attacks, probably will see their commercial insurance rates rise by at least 20 percent and as much as 300 percent.

"No question, the cost of insurance is going up dramatically," said Brad Norrick of Cleveland office of Marsh USA Inc.

Marsh is the nation's largest insurance broker and risk manager.

Almost every line of commercial insurance will be affected by the World Trade Center loss, said Dave Jacobs, executive vice president for Cleveland insurance broker and risk manager James B. Oswald Co.

Commercial insurance premiums will rise the most, but personal lines, such as home and automobile insurance, also could rise slightly as insurers and reinsurers spread out their losses, Jacobs said.

"This is not a regional issue or a national issue, this is a world issue," Jacobs said. "No loss has impacted the world like this one."

If the federal government doesn't step in with a special reinsurance fund, as it has proposed, local businesses could find themselves completely without terrorism coverage, which is typically included now in commercial property and casualty contracts.

The massive insurance bill for the World Trade Center probably is a death sentence for low commercial insurance rates, which businesses in low-risk industries and with few claims have enjoyed for a decade, said Robert J. Joyce, chief operating office for Westfield Group, a commercial and personal insurer in Medina County.

In that time, many insurers and reinsurers had the capital to offer more commercial coverage than most businesses needed, Joyce said. The money came in large part from the boom in the U.S. stock market, in which insurers and reinsurers invested the premiums they got from customers.

As the value of their investments rose, insurers and reinsurers wrote more and higher contracts for commercial coverage. Because there was an ample supply of this coverage, insurers charged relatively low rates.

Often, insurers such as Westfield pass 80 percent of the risk (and premiums) for a large commercial insurance policy to one or more reinsurers, Joyce said. While the insurers were piling up policies, reinsurers were buying each other, concentrating risk in a handful of companies, he said.

The industry picture began to change early last year when the U.S. stock market began a downward slide, Joyce said. As the value of investments fell and losses from natural disasters rose, insurers and reinsurers wrote less new business. And as the supply of coverage fell, insurers and reinsurers raised their rates for commercial insurance, and to a lesser extent, personal insurance.

Insurance rates already were on their way up before Sept. 11. Now, they likely will spike because a few reinsurers must pay huge losses they could not see coming.

"How do you model a terrorist attack? How do you price it?" Joyce asked, referring to the industry risk models that enable insurers to set prices for their products.

The reinsurers likely will have no choice but to raise rates and limit future coverage, he said.

And when that happens, insurers such as Westfield will raise rates to cover their own higher costs.

And although there are few answers to questions like, "How high will commercial rates rise?" some local businesses already have been hit by the Sept. 11 effect.

On Thursday, Marsh found an insurer to provide property coverage for a Cleveland business, Norrick said.

"From last year to this year, this coverage is for half the total protection" as provided before, he said, at "twice the deductible and three times the price."

Meanwhile, Todd A. Stein, president of Akron risk manager Brunswick Cos., is helping some clients manage their claims more aggressively and prepare for paying more out-of-pocket for claims.

"If you have a small company that was paying $50,000 a year for property/casualty insurance, and they get a bill from a broker for $150,000 or $180,000 this year, it may be better for them to pay $75,000 now, knowing they can pay more [out of pocket] for claims later if they come," Stein said.

Contact Mary Vanac at:

mvanac@plaind.com, 216-999-5302

LOAD-DATE: November 14, 2001