"The world's largest insurers have a piece of this risk," says Robert Hartwig, the chief economist for the Insurance Information Institute in New York, who witnessed the disaster. "Although the losses will not threaten the industry's solvency, they will be a significant drain on the industry's capital and will further 'harden' the market."

Going forward, more of these policies will most likely exclude losses due to terrorist acts.

Moody's Investors Service says insurance claims could total between $10 billion and $15 billion. The National Association of Insurance Commissioners (NAIC) agrees with the credit agency's estimate.

Hartwig says coverage on the towers themselves totaled about $4 billion, and is not enough to rebuild the complex, which he estimates costing $5 billion to $5.5 billion. The complex consisted of the two towers, a 47-story office building, two nine-story office buildings, an eight-story U.S. Customs office, and a 22-story hotel. Insuring the cluster of buildings for replacement coverage would have been remote.

According to Hartwig, no matter the ultimate price tag of the attacks — Swiss Re, the Swiss reinsurance giant, says it alone faces claims estimated at $1 billion — insurers are bound to change the way property/casualty insurance policies are written. Hartwig says, going forward, more of these policies will be changed to exclude losses due to terrorist acts and that this exclusion may become as commonplace as the "acts of war" exclusion found in virtually all property/casualty insurance policies.

The World Trade Center was insured in the event of a terrorist bombing, according to The Wall Street Journal, but it was not insured against losses incurred during an act of war. In July 2001, Westfield America Inc. acquired a 99-year lease to the center from the New York Port Authority in an estimated $3.2 billion deal.

Hardest hit

Policyholders shouldn't panic, says Barbara Levering, the spokesperson for the American Insurance Association. "Those of us in financial services are deeply affected," says Levering. "The horror is unimaginable, but the industry is well capitalized and the risk was layered and spread among many insurers."

Hartwig agrees and says that while some smaller insurers might encounter extreme financial difficulties due to heavy claims, the world's largest insurers should be able to withstand significant financial losses.

While the very nature of insurance is to insure against unforeseen disasters, Hartwig admits that no insurer has had previous experience with such a cataclysmic event.

The attacks sent shockwaves through the entire insurance industry. Although the New York Stock Exchange didn't trade soon after the attack, the insurance sector dropped 11 percent on the London Stock Exchange before it, too, ceased operations. Swiss Re tumbled nearly 16 percent, AXA declined 13 percent, and Royal & Sun Alliance fell 14 percent on the London Stock Exchange.

One of the insurers most likely to be hard hit is The Chubb Corporation. Chubb announced it has insurance exposure to both property and businesses housed in the towers that collapsed. In addition, the company will also pay claims under business interruption, accident, and workers compensation coverages.

According to Chubb Chairman Dean R. O'Hare, pre-tax losses are expected to range between $100 to $200 million. O'Hare says while it is "difficult to focus on the financial fallout of these events during this time of overwhelming tragedy and grief," the company's customers will be able to focus on the human aspects of the tragedy "with full knowledge that the company's strong reserves and balance sheet will enable [Chubb] to assist them in their time of need."

The NAIC is also telling policyholders that the insurance industry as a whole will be able to withstand the after-effects of the tragedy. "The insurance industry in the United States is an $850 billion industry with assets of over $3 trillion," it said in a statement released Sept. 12, 2001. "We have every confidence companies have the financial ability to keep the promises they've made to their policyholders in this instance."