Terrorist Attack Likely to Have Modest Impact on Property Insurers, Weiss Says

Although Tuesday’s terrorist attack on the World Trade Center building is a terribly tragic event, the impact on the property insurance industry is likely to be modest, according to a preliminary analysis by Weiss Ratings Inc., a provider of independent insurance company ratings and analyses. Weiss Ratings has no specific data to support commentary on insurance for the Pentagon or coverage on commercial aircraft.

On the other hand, insurers with workers’ compensation or business interruption exposure are at the greatest risk since there is no limit to the amount of claims they might incur.

“In terms of property damage, this is roughly equivalent to the impact of a major hurricane. It is a blow to property insurers, but it is something they are generally prepared to absorb so we are unlikely to see a rash of failures,” commented Martin D. Weiss, Ph.D., chairman of Weiss Ratings. “In terms of emotional damage and loss of life, however, the impact is obviously much more severe than a hurricane or any other catastrophe we could have imagined.”

With property damage certainly running into the billions of dollars, Weiss put the World Trade Center damage into perspective by noting that Tropical Storm Allison caused $2.5 billion in damage in 2001 without directly causing a single insurance company failure. Conversely, Hurricane Andrew in 1992 resulted in $26.5 billion in property damage, resulting in several insurance companies pulling out of that market due to fear of another major disaster.

Weiss noted that industrywide, insurers collected $13 billion in premiums in 2000 for commercial multiple peril (non-liability) insurance with $1 billion in premiums written in the state of New York. Many property and casualty insurance policies include standard language that excludes damage caused by acts of terrorism or war. It is unclear at this time whether the attacks would fall under that category.

“We’ll probably see an increase in premium rates and a decrease in coverage availability, especially for those properties that might be considered terrorist targets, but this will not cripple the property insurance industry,” Dr. Weiss added.

Topics Catastrophe Carriers Natural Disasters Property