Insurance companies in the US may get a breather if the nation retaliates to the bombing of the World Trade Center (WTC) and Pentagon since acts of war are excluded from property and casualty covers.
Joe Annotti, spokesperson for the National Association of Independent Insurers (NAII), has reportedly stated that property/casualty insurers will have to pay claims as long as the incident is not deemed an act of war, which is specifically excluded in most property/casualty policies. Actions of terrorist groups are considered acts of war only if they are sponsored by a sovereign nation. It is unlikely that any nation will publicly claim responsibility for the tragedy in New York City and Washington, DC, he said.
The WTC 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. Officials at The New India Assurance Company stated that there is a hairline difference between terrorism and war. "Traditionally war risks are not insured except in the case of marine property.
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Terrorism to this extent has never taken place. It has always been localised and small scale in nature," he stated.
The extent of the damage itself could lead to retaliation and a series of attacks. If this occurs, then the first bomb will be deemed as an act and the start of war. There will be no payment made by insurance companies, he stated, and the cost will naturally be borne by the US government.
In a recent gathering of reinsurance executives this week the initial estimated the insured losses from the attack has been placed at $15-20 billion. Such a loss would far exceed 1992's Hurricane Andrew insured losses of $17.95 billion, considered to be the costliest insured event in history. The property loss in the first World Trade Center bombing in 1993 was a mere $510 million.
According to an insurance broker familiar with the airlines' insurance programmes, the aviation liability losses would alone be in the region of $1.5 billion for each of the jets and that the four planes were insured for $250 million each.
While the losses will not threaten the industry's solvency, there will be a significant drain on the industry's capital and will further 'harden' the market. The extent of heavy claims is expected to hit smaller insurance companies, while the world's largest insurers would be able to withstand the significant financial losses. According to The National Association of Insurance Commissioners (NAIC) in a statement released on September 12, 2001: "The insurance industry in the United States is an $ 850 billion industry with assets of over $ 3 trillion."