Three Years Later: Industry Rebuilds from 9/11, But Doesn’t Forget

Robert Hartwig, senior vice president and chief economist for the Insurance Information Institute (I.I.I.), knows that while Tuesday, Sept. 11, 2001, will never be forgotten both inside and outside the insurance industry, the industry has picked itself up and continues its role in today’s economy.

Hartwig was one of several individuals who spoke recently with Insurance Journal about the event itself, the ramifications for the industry, and where we go from here.

“I think the industry has rebounded reasonably well financially, that fact not withstanding, that does not imply that terrorism risks can be completely insured by the private sector,” Hartwig said. “It doesn’t matter how much or how well we rebounded from Charley (hurricane in August 2004), by definition large-scale terrorist events are fundamentally uninsurable.”

John Kollar, vice president of Insurance Services Office (ISO), also feels the industry has its feet upright.

“To put things in perspective, prices were starting to go up before Sept. 11, and so the market was hardening and financial results were to start improving,” Kollar commented. “Yes, the industry has rebounded financially to a more respectable position relatively speaking. Now prices may be even softening a bit. Financially, the industry is in decent shape.”

Gregory Serio, New York Insurance Department superintendent, knows first-hand the impact of 9/11. Among those lost on that day was Neil Levin, executive director of the Port Authority of New York and New Jersey. Levin was the former insurance superintendent for New York, Serio’s present post.

When asked how the industry has recovered from that tragic day and since then, Serio noted, “Even though we are three years out, we have a tendency to forget what people went through in the days and weeks after 9/11. It certainly never goes away for any of us in New York. I think for the industry, this is something that will not go away, even though we have a tendency to forget these things. The fact is, the industry performed extraordinarily well. That can’t be forgotten. We’ve had a very tumultuous and difficult market in the aftermath. The last three years in the property/casualty market have been the toughest that a lot of people can remember. I think the marketplace has rebounded. I can’t say there is a complete recovery or that it will return to the way it was Sept. 10 and in certain respects, we hope it won’t. Companies are trying to maintain discipline in pricing and underwriting and I think that is holding to some degree, although prices have moderated.

“The one thing I’m most concerned about is still what I see is a continuing displacement of admitted market capacity and the failure or lack of a return and redevelopment of admitted market capacity. We still have significant capacity in the surplus lines market and that is not necessarily a bad thing. The surplus lines market is an important and viable part of the insurance marketplace. If we want to talk about a recovery, part of that recovery has to be the rebalancing of the market between admitted capacity and non-admitted capacity.”

The financial impact
With the threat of terrorism here to stay in the foreseeable future, Hartwig was asked if the industry could financially withstand another 9/11.

“If it were to occur this year, it would cost insurers $12.5 billion (property/casualty only) which would make it the third most expensive event in history, even before the Terrorism Risk Insurance Act (TRIA) kicked in. While the insurers could probably withstand it financially, it would be quite a painful event. If TRIA were to expire (Dec. 31, 2005) it becomes a whole other ballgame.” As Hartwig noted on the current status of TRIA and extending it, “the number one problem now is time is running out on the legislative clock.”

Hartwig indicated that the majority of major insurers and reinsurers have financially recovered from 9/11. “While it was a very financially distressful event, there were no major insurers that went under. There were a couple of aviation reinsurers that had a lot of exposure that kind of went under.”

According to Kollar, “There were some insurers that went insolvent (following 9/11), but that’s something that happens every year in property/casualty, so it wasn’t an exceptionally large number.” When asked if 9/11 played a part in the insurers’ going insolvent, Kollar noted, “I don’t know that I’d be comfortable saying that. It may be more of just the natural evolution taking place.”

While no one could have predicted the magnitude of 9/11, an earlier attack on the World Trade Center may have set things in motion for 2001, and the threat has definitely gotten the industry’s full attention.

“Even though theoretically terrorism was a threat—go back to the first World Trade Center bombing (1993)—Sept. 11 showed everyone that an event of this scale could happen,” Kollar said.

According to Kollar, after Sept. 11 many insurers realized they don’t always know where some of their exposures are, particularly on areas like workers’ comp. “They’re writing a company, but where do the people work? There is a lot of discussion and concern on that. Many insurers are finding out where their exposures are, getting addresses on locations, things like that. Before they wrote a large account, they may not know where their exposures are. There are terrorism models out there that help insurers identify and deal with that risk. Even though the numbers are tough to call, they help one deal with the reality and then try and measure the exposure the company has.”

When asked if insurers are being more cautious now in offering coverage for businesses and especially those with high concentrations of employees in a specific building, Hartwig noted “they definitely are. They look at so-called ‘clash’ coverage, looking not only at the physical damage or destruction to a building, but also the potential losses they might suffer in a workers’ compensation scenario added on top of the property scenario. Increasingly, we have to be concerned about potential liability losses. You have to remember that the liability losses this time around were limited by the Victim’s Compensation Fund that was a one-off piece of special legislation. There is no guarantee that would exist the next time around.”

According to Jack Seaquist, model project manager for Air Worldwide Corp., a risk modeling company, when questioned whether companies are building differently and not concentrating large groups of employees in high-rise settings, he remarked, “I don’t think that’s factored its way in yet. You still see a lot of large buildings opening. Companies I work with are working very hard to identify where they have these large concentrations, people or property.”

The human impact
As New York Insurance Department Superintendent Serio noted, the recovery in the industry has been something to see.

“I deal with all these entities on a pretty regular basis,” Serio said. “The ability of this industry not just to rebound from adversity but to also cover others who faced the same adversity, I mean very few sectors of business or government are called upon to deal with their own tragedies while responding to other’s tragedies. The insurance industry was front and center in the direct path of this catastrophe—it really shows you the strength (not only financial, but inner strength and fortitude) that this industry has to manage simultaneously its own tragedy and the tragedy as it affected its customers. There are a lot of industries that can’t do that.

“Some like Aon, AIG, Liberty who have also not just dealt with their own tragedies, but also their resounding commitment to return to lower Manhattan, as a New York regulator and I think I can say this on behalf of the Governor, that’s incredible.”

Silverstein, claims made
One issue that dominated the industry news for some time had been whether the attacks indicated one event or two? When asked about the Larry Silverstein case and whether the attacks on the World Trade Center was one or two events, Hartwig said, “I had always estimated this as a single event, even before I heard there was a controversy over whether it was one or two events. If you read the definition of an occurrence, clearly in my view it was one. It was not a coincidence that four planes crashed into different targets simultaneously.”

Some isolated cases of fraud also came into view after 9/11. “There were not a large number of instances of fraud,” Hartwig noted. “There were a few people who basically faked their deaths or had property damaged. As far as events of this size, there was apparently relatively little fraud. I think the nature of this event didn’t lend itself that well to committing a lot of fraud. I know insurers had their ears and eyes open to it.”

Hartwig also added that the industry as a whole has done a good job helping families impacted by 9/11. “The complaint ratio for 9/11-related claims in New York State was under 1 percent. From every report I’ve gotten, the way insurers responded to this completely unanticipated event, they’ve gotten gold stars for their performance.”

Serio added, “while we all highlighted the instances of fraud and attempted fraud, those were in the minority of events and clearly not the majority of our experiences.”

Moving on and learning
With the three-year anniversary approaching, numerous tributes and remembrances will take place, both publicly and privately, but complacency hopefully has not set in nearly three years later.

When asked how the industry has changed post-9/11, AIR’s Jack Seaquist noted, “The industry is still in a state of flux, so much is changing on such a short-term basis. TRIA has tried to stabilize that and didn’t really stabilize the market. That’s why the industry wants an extension.”

Seaquist also commented on the rating agencies that rate the insurance companies. “They’ve (rating agencies) just begun this year to ask questions about the terrorism-risk exposure. As a result of that, companies have to diligently understand their risks and report it.”

As ISO’s John Kollar noted, “With 9/11 actually happening, it is a good reminder to people that they should be limiting the line they are writing on any particular risk. I think there is more awareness of that.”

Needless to say, everyone both in and outside the industry has learned something since 9/11, but on this third-year anniversary, folks will pause to remember those lost and those who survived.

“The continued forward march to rebuilding and recovery goes on,” Serio said. “I think that is how we will mark it on Sept. 11 and we will mark it every day before and after an anniversary. For the department, we were in the throes of this thing on Sept. 11. We’ll remember former superintendent Levin who we lost that day and we will remember all of our people who lost family members and people who endured this thing and we will do it in our own way. I think the industry and government together will look at Sept. 11 in year three as part of that rebuilding and the strength that you get from that rebuilding.”

The rebuilding goes on in many ways.

Topics Catastrophe Carriers New York Fraud Property Numbers Property Casualty