New York City Comptroller William Thompson Jr. announced the release of a survey showing drastic increases in commercial insurance premiums since Sept. 11, 2001, “One Year Later: The Effects of 9/11 on Commercial Insurance Rates and Availability in New York City.”
Upon releasing the survey results, the comptroller decried insurers for charging higher rates. “Insurance companies are taking advantage of New Yorkers,” Thompson said. “They are not helping the City right now, and this is undermining our ability to retain and attract new business. Once again, New Yorkers are being penalized.”
The Comptroller’s Office asked about changes in the price and availability of nine lines of property and casualty coverage since Sept. 11, compared with the previous year. The survey determined that New York City has experienced premium increases markedly higher than those in the rest of the country after September 11th.
Businesses located in high-rise buildings in Manhattan, particularly those in, or even near, landmark or “trophy” properties considered by insurers to be at risk of becoming terrorist targets had the greatest increases in premiums. Large sized accounts, with premiums over $1,000,000, experienced an average 73.3 percent increase per policy, while medium-sized accounts, those paying premiums between $50,000 and $1,000,000, encountered an average increase of 49.5 percent, and small-sized accounts, which pay premiums of less than $50,000, an average 39 percent increase.
In a meeting with the Comptroller’s Office, members of the Real Estate Board of New York (REBNY), which includes many of the city’s largest policy-holders, described “serious” problems large commercial tenants have experienced in obtaining affordable coverage. The representative of one landmark property said that its property insurance premium had increased almost 700 percent without terrorism coverage for one-third of the property’s value. Another reported he approached 25 insurers in the domestic and foreign property market, none of whom was interested in insuring his portfolio of properties at any price.
Thompson also expressed concerns about the effect of the increases on small businesses.
“Many of these businesses may be at greater peril from rate increases since they are least likely to have the resources to tolerate significantly increased costs,” he said. “New York State does not allow insurers to exclude terrorism, so insurers are restricting the coverage they will write, or drastically increasing rates to protect themselves from potential catastrophic losses.”
The Comptroller pointed out that September 11th was not the only factor to trigger the increased premiums, and that insurance rates already were on the rise before the attack. Higher than anticipated losses and the economy, which already was slowing before the attack, also contributed to rising prices and a tightening insurance market.
Survey respondents reported fewer insurance companies are willing to write additional business or renew existing business in New York City, especially Manhattan, after Sept. 11. The insurance lines most affected by the attack were business interruption, commercial property, general liability, umbrella and excess liability and workers compensation.
The Alliance of American Insurers (AAI) called the commissioner’s charges misguided, contending that insurers were not to blame for the city’s inability to attract new business.
AAI President Rodger S. Lawson asserted, “Following 9/11, insurers stepped to the plate to pay claims that resulted from what the President called an ‘act of war,'” said Lawson. “Since that time, we have repeatedly urged Congress to pass the terrorism reinsurance bill to provide a backstop for insurers who no longer have access to the reinsurance that was available to cover such catastrophes prior to 9/11.
“The potential for future attacks is great, and insurers must be able to spread the risk of another attack through reinsurance,” Lawson continued. “They cannot be expected to risk their solvency by taking on more risk than is prudent. The terrorism bill currently before Congress would provide a backstop that would allow insurers to manage that risk.”
Lawson said the decision by the New York Department of Insurance not to allow insurers to exclude terrorism coverage, while 45 other states granted those exclusions, also had a negative impact on the situation.
“We realize that prices have risen dramatically. As the comptroller’s full report accurately depicts, commercial insurance had been under-priced for several years and the industry was just entering a cycle of rising premiums when the attacks occurred. Unfortunately, the timing of the attacks and the resultant decrease in reinsurance availability created a formula for the dramatic increases that have followed.”
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