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Insurance loss from September 11th attacks could top $40 billion

The Insurance Information Institute (III) estimates the insurance loss from the September 11th terrorist attacks will ultimately total $40.2 billion.

“9/11 is not only the biggest insured catastrophe ever, it is the most complex,” says Gordon Stewart, president of the III. “The vast majority of claims for homes and autos have been paid, but commercial claims are more varied and complicated. While many have been helped, this recovery process will take years.”

The III’s loss estimates include:

  • $11 billion (27 percent) in claims for business interruption;
  • $10 billion (25 percent) in liability claims;
  • $6 billion (15 percent) in property claims for damage to property, including vehicles, other than World Trade Center buildings One and Two;
  • $3.5 billion (9 percent) in property claims for WTC buildings One and Two;
  • $3.5 billion (9 percent) for aviation liability;
  • $2.7 billion (7 percent) in life insurance claims;
  • $2 billion (5 percent) for workers compensation claims;
  • $1 billion (2 percent) in claims for event cancellation;
  • $500 million (1 percent) for the loss of the four commercial aircraft.

Some claims still outstanding

Companies that report claims information to the New York Department of Insurance indicate more than 33,000 claims have been filed so far in relation to the September 11th attacks. Two-thirds of those claims come from commercial businesses, many in the Lower Manhattan area surrounding the World Trade Center site. III reports these claims tend to involve property damage, business interruption and workers compensation. Thousands of claims have been filed for life and disability insurance.

Most commercial property damage claims that deal with physical damage have been paid. In a few cases, the III claims the extent of damage to large structures adjacent to the World Trade Center, and whether they can be reoccupied because of environmental concerns are still being assessed. In other cases, decisions about replacing destroyed buildings have not been made, which affects the flow of insurance money.

Not all the anticipated liability claims have been filed. Many potential claimants are still evaluating whether to file through the Victims’ Compensation Fund.

In addition, a number of business interruption claims, which involve lost profits because a business was closed for a period of time and/or additional expenses because operations were relocated, have not been filed or closed. This process has been slowed because many records needed to document the extent of loss were destroyed in the disaster. In other instances, businesses have moved to temporary locations and are still receiving payments under their policies. These claims cannot be closed until a permanent location is established.

Impact on overall insurance rates

Stewart says despite the magnitude of the insurance claims from September 11th, they should have little impact on the rates Americans pay for home and auto coverage.  Stewart says the recent rise in home and auto rates are due to other factors, not September 11th.

The cost of commercial insurance; however, has been impacted by September 11th.

“Terrorism represents a severe new risk to our society. Individual insurers have to avoid concentrating their risks in areas where high profile buildings and large numbers of employees could result in enormous losses. While limited coverage exists, it tends to be expensive,” cautions Stewart.

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