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Sept. 11 accelerated auto and home insurance rate hikes for consumers

A year after the terrorist attacks, insurance industry experts say that Sept. 11 hastened — but did not cause — otherwise inevitable auto and home insurance rate hikes for consumers.

Prior to Sept. 11, other forces were already combining to ensure that consumers would soon be paying higher premiums.

"Sept. 11 just made [what was going to happen], happen all that much faster," says Don Griffin, spokesperson for the National Association of Independent Insurers.

Prior to Sept. 11, other forces (such as escalating car repair and medical costs, rising mold and weather-related claims, soaring jury awards, and a tanking economy) were already combining to ensure that consumers would soon be paying higher premiums.

According to the Insurance Information Institute (III), the average cost of insuring a car nationwide is expected to jump by 8.5 percent this year (it was previously estimated to rise 6 percent), while the cost of insuring a home is expected to increase by 8 percent. Robert Hartwig, III's chief economist, predicts the cost of insuring both cars and homes is expected to rise another 9 percent in 2003.

Reality bites

While Hartwig says these increases translate into a relatively modest $40 for the average homeowner and $60 per vehicle, many consumers say those numbers don't reflect their personal situations. If you've made one or more claims on your auto or home insurance policies, live in a state hard hit by mold claims or natural disasters, or rent an apartment in a high-rise building vulnerable to possible terrorist attack, chances are good that you're already paying significantly more for your insurance or you're having difficulty obtaining insurance at all.

"Insurance spreads risk. Risk that cannot be quantified cannot be spread with any precision or confidence."

Insurers partially blame the price hike on the fact that they have paid out more than $100 billion in catastrophe-related losses in the past 12 years. According to III, home insurers over the past decade have paid out $1.18 in losses and expenses for every $1 they earned in premiums. III also cites rising medical costs as an important factor in the cost of auto insurance, saying the cost of auto-injury claims is rising by as much as 30 percent in some states.

But many consumers blame insurers for exploiting Sept. 11, using it and the nation's economic woes as an excuse to gouge consumers' wallets and bully the federal government into giving the industry a bailout to cover an estimated $40 billion in insured losses.

According to Joanne Doroshow, executive director of the Center for Justice & Democracy, soon after Sept. 11, insurance industry representatives told Congress that if insurers didn't get a federal bailout then "banks would stop lending money, new construction would grind to a halt, and businesses would collapse. The blow to the U.S. economy would be crushing."

Contrary to those predictions, the Consumer Federation of America (CFA) issued a study on Aug. 22, 2002, that concludes:

  • No broad-based terrorism crisis exists. The CFA says most of the nation has not had a problem in finding coverage.
  • Insurers actually have a greater capacity to cover terrorism losses in the wake of Sept. 11. The CFA says the insurance industry continues to be overcapitalized with an "ultra-safe" premium to surplus ratio of 1.1 to 1.
  • Terrorism coverage is available in most cases. CFA says small- and mid-size businesses are having little trouble getting terrorism insurance and even potential terrorist targets such as skyscrapers are finding coverage, including the Sears Tower and World Trade Center clean-up site.
  • Banks are freely loaning money to the vast majority of business. CFA cites a survey of bank loan officers in April 2002 by the Federal Reserve that reported that lack of terror coverage was having a minimal impact on lending.

But not everyone agrees. In response to CFA's study, the National Association of Mutual Insurance Companies (NAMIC) says: "NAMIC seeks a terrorism backstop not to mitigate losses that have already occurred, but to try to protect against the risk of future terrorism — a risk which cannot be measured and hence cannot be priced. Insurance spreads risk. Risk that cannot be quantified cannot be spread with any precision or confidence."

Mental health costs unknown

The cost of health insurance was already going through the roof prior to Sept. 11, so the impact of the terrorist attacks on the cost of health care has not yet been widely studied. However, mental health experts have been warning all along that the mental health fallout from the terrorist attacks could be significant.

Approximately 75,000 of New York City public school children in grades 4 through 12 have multiple symptoms consistent with post-traumatic stress disorder.

Much attention is currently focused on a Columbia University study that looks at 8,266 New York schoolchildren, ages 9 to 18, to determine the psychological effects of Sept. 11. Mental health experts conducting the study expected to find 3 to 5 percent of the children to be suffering from some form of mental illness as a result of the terrorist attacks. They were astounded to discover that their study showed 15 percent of the children were affected.

"We must view these New York City post 9/11 findings with much alarm," says study author Christina W. Hoven, "not only for what they say about the current condition of these particular NYC children, but also out of concern for what we don't know about mental health in our nation's children in general. As in the years following the explosion of the first atom bomb, the youth of America are under new stress, potentially lowering the threshold for onset of mental illness."

See Insure.com's Getting mental health help for kids in crisis is tricky.

Hoven says many of the children's symptoms mirrored mental problems that are more often seen in war zones, suggesting that many of the 1.2 million children enrolled in New York City schools may be unaware of the mental scars they are carrying until much later in life. Mental health experts say this could create a long-term burden on the mental health care system. Although there was a great outpouring of free psychiatric services right after the attacks, patient advocates like Karen Shore, the founder and past president of the National Coalition for Mental Health Professionals and Consumers, worries many people are still numb.

Shore asks: "What happens down the road? We're still seeing Vietnam vets coming into VA hospitals for the very first time to get treatment for post-traumatic stress disorder. It's what — 35 or 40 years later?"

Hoven's study also finds that:

  • Approximately 75,000 (10.5 percent) of New York City public school children in grades 4 through 12 have multiple symptoms consistent with post-traumatic stress disorder.
  • An estimated 190,000 (26.5 percent) have at least one of the six assessed mental health problems listed below (excluding alcohol abuse):
  • 15 percent (one in every seven children) has agoraphobia (fear of open spaces).
  • 8 percent have major depressive disorder. <10
  • 12 percent have separation anxiety disorder.
  • 9 percent have panic attacks.
  • 11 percent have conduct disorder.

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