US ‘war footing’ puts insurance claims at risk

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The Lutine Bell was rung at lloyds of London yesterday to mark Tuesday's attacks

US ‘war footing’ puts claims at risk

Claims which could total $20 billion for compensation in the wake of Tuesday’s terrorist attack on the World Trade Center will be jeopardised if, as expected, US President George W Bush formally declares the disaster an "act of war".

It is believed that many of the companies housed in New York’s landmark buildings are insured only against terrorist attack, and not damage caused by warring countries.

Yesterday, a spokeswoman for Lloyd’s of London, the world’s largest insurance market, said there would be serious implications if the attack on New York was officially declared an act of war by US legislators.

"It could have a bearing. It will entirely depend on what policies individual companies have in place," she said. "Obviously it is far too early to say what the insurance implications of the attack are."

Life insurance policies typically carry riders that revoke coverage if someone dies in a war zone. But Jack Dolan, a spokesman for the American Council of Life Insurers, an industry trade group, pledged insurers would not use that as a way to avoid paying benefits.

However, with many insurance firms expected to struggle to find a way of fulfilling their commitments, there is widespread concern that claims might be delayed or even rejected if the US adopts a legally-binding war footing.

The final insurance bill is unknown but one report indicated it could top US$30 billion. Other estimates placed the final cost at between $10-$25 billion.

Lloyds warned that any specific estimate of the absolute cost was speculative.

"The situation in New York and Washington is evolving continually.

"The global social and economic effects are only just starting to be felt. Any calculation of the total losses so soon after the event can only be deeply flawed," said Lloyds chairman Saxon Riley.

Still, many insurers are likely to raise rates and, in writing new policies, create more exclusions or restrictions on future claims related to acts of terrorism.

Lloyd’s rang its Lutine bell and held a minute silence yesterday as a mark of respect to those killed in the US terrorist strike. The bell, salvaged from the British frigate HMS Lutine in the 19th century, was traditionally rung to signal news of a missing ship. It has been rung to mark other tragedies such as the loss of Apollo 8 and the death of Diana, Princess of Wales.

Lloyd’s later confirmed it had a "substantial involvement" in the insurance of United Airlines, American Airlines, and the World Trade Center complex, though it still would not estimate the size of its exposure.

Insurer CGNU estimated its liability to the disaster would not exceed £35 million. A spokesman said: "Following these events we have reviewed our worldwide exposure to the potential insurance claims which may arise, including accident and life policies, business interruption, travel and some participation in aviation insurance. An initial estimate is that CGNU’s total net liability is not expected to exceed £35 million."

Other leading insurers, Prudential and Royal & Sun Alliance, both said it was still too early to say what their exposure to the attack was.

Reinsurance groups Munich Re and Swiss Re have said the disaster would cost them each around £677 million in claims, although both stressed that the full extent of their liabilities was still to be determined and that they were financially strong enough to withstand claims of this magnitude.

Meanwhile, graduates who have only just been taken on by Lloyds in the City fear their careers are already over. Insurance brokers are bracing themselves for job losses.

One young broker who asked not to be named said: "We have heard on the grapevine that the cost of the attack on American could reach £30 billion and we are bracing ourselves for job losses. A lot of insurance firms in London could go to the wall."

Andrew Murray-Watson Senior Business Reporter Friday, 14th September 2001 The Scotsman

http://www.business.scotsman.com/news/headlines_specific.cfm?headlineid=18037

-- Martin Thompson (mthom1927@aol.com), September 14, 2001


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