Insurance Rates Are Rising Sharply Across U.S.

By JOSEPH B. TREASTER
 

The terrorist attacks on the World Trade Center and the Pentagon have triggered steep increases in insurance prices across the nation, raising costs for small  businesses, factories, farms, homeowners and drivers, as well as large corporations. Far from being limited to cities and companies that seem most vulnerable, the rising rates are reaching in to the quietest, most remote areas of the country.  At the  same time, the demand for insurance has soared. "The insurance companies have just taken a big hit and, to recoup, they have to raise prices for people in Santa Barbara and Oshkosh, Wis., and Tillamook, Ore.,  and everywhere else in the country," said Tom Caesar, an owner of Caesar & Seider, a commercial insurance broker in Santa Barbara, Calif. "The fact that people  want more coverage is only making matters worse, as far as prices go." The increased rates stand as a vivid and direct example of how attacks have raised the costs of living and doing business, often in ways only indirectly related to  terrorism. Rates are rising high enough that investors are seeking to take advantage of the insurance industry's growth potential.  Yesterday, two investment firms announced  plans to invest $750 million in the Arch Capital Group (news/quote), an insurer based in Bermuda.  Investors are working on at least a dozen more deals. The higher insurance prices are taking effect immediately for many commercial customers as, toward the end of the year, renewals come up.  Increases, far from  uniform, are in many cases extreme.  Customers considered the most likely to file claims --- based more on their records and their perceived riskiness than on the  terrorism threat --- face the highest increases. Premiums have doubled, for example, for one poultry farm in Missouri.  A heavy equipment manufacturer in California received the same shock; its umbrella  liability coverage bill doubled to $8 million. A plastics maker in Lansing, Mich., paid $388,000 for workers' compensation coverage, up from $240,000, while manufacturer of prefabricated houses north of  Detroit paid $185,000 for property coverage that last year cost $50,000.  "Prices are going through the roof," said Damian Testa, a division president of Kaye  Insurance Associates, a regional broker in New York. With Less capital and more demand, the insurers are also rationing coverage.  Many are providing full coverage to only the least-risky customers, offering others  lower coverage limits, higher deductibles or prices they know are likely to be unacceptable. Of all businesses, the airlines have been hit the hardest.  "They're looking at total coverage costs of $4 or $5 a ticket as opposed to $1 or $2 before the attacks," said Grahame Chilton, chief executive of the Benfield Group, an international insurance broker in London.  Analysts say the costs are being passed on to airline  passengers. People who live in co-op apartments and condominiums, which are covered by commercial insurance contracts, are already starting to pay significantly more.  Mr.  Caesar said that a town-house condominium in Newberry Park, Calif. north of Los Angeles, paid 40 percent more for $30 million in coverage when it renewed last week. But, partly because of tighter regulation, increases in the cost of insuring houses and cars are expected to be less pronounced, as they are gradually imposed over  the next year.  Economists and analysts say the attacks could add 2 percent to 4 percent to homeowner insurance bills, and probably less for drivers. But prices for home and auto coverage had already been expected to rise this year, by an average of at least 6 percent, up from 3 percent last year. While apartments towers will cost more to insure, in the New York area and across the nation, residential coverage is also likely to rise sharply where insurers, and  their customers, face the greatest risks from causes apart from terrorism. The increases are likely to be among the largest in Florida and California, where hurricane and earthquake coverage is sold separately from general coverage on  houses, said Robert Hartwig, chief economist for the Insurance Information Institute, a trade group.  This additional coverage relies heavily on reinsurers, who  share major risks with retail insurers.  But because the reinsurers are likely to bear so much of the costs from Sept. 11, they have become much more cautious. The rate increases result from the $40 billion in losses that insurers expect to suffer from the terrorist attacks, their worst losses ever.  Most, though not all, insurers  can cover their costs from last month's attacks.  But some doubt they could sustain another huge round of losses.  Insurers say they can continue to provide  terrorism coverage only if Congress limits their potential losses. Many corporate customers now need to patch together coverage from several insurers.  The managers of a huge metal processing company in the South that has  had some big claims was told last week, for example, that the insurer providing $1 billion in coverage would sell them just $10 million next year. "We're going to have to scramble to get them coverage," said Stan Loar, the chief executive of Woodruff-Sawyer & Company, a broker in San Francisco.  "It's  going to take 15 to 20 companies to get what they bought from one company last year."  He expects his client's annual premiums to double, to $3 million. Companies wanting added coverage are also in a squeeze.  A maker of computer equipment in Silicon Valley, worried that a terrorist attack might disrupt its flow of  supplies, doubled its business interruption coverage to $10 million, Mr. Loar said.  Usually, he said, the premium for the second $5 million would be lower.  But  now, the insurer is charging $35,000 for the added coverage, on top of an initial premium of $22,000. Commercial insurance costs had already been expected to rise 10 percent to 20 percent, at least, in part because of lower investment returns. Some brokers say rates will probably increase again as most businesses renew their policies in January.  "Premiums for some coverages will probably go up 200  percent or 300 percent next year," said David M. Lockton, chief executive of the Lockton Companies, a commercial insurance broker in Kansas City, Mo. Among some businesses, desperation has set in.  Tarrogon Realty Investors (new/quote), based in New York, owns 85 apartment complexes around the nation.  Usually, Tarragon shops around for the best insurance prices. But after the attacks, Bette Slowther, who buys Tarragon's coverage, heard that more than half the insurers that cover apartment buildings had quit out of the  market.  "The insurance companies are looking very carefully at what they write," she said, "and deciding they are not going to take as many chances." When her present insurer, Royal Specialty, offered to renew her $2 million premium at a 25 percent increase, with the same $10,000 deductible, she jumped at it.  She worried that is she hesitated, Royal Specialty might change its mind.  "Then we might not have any insurance at all," she said.  "Or we might end up with  hundreds of thousands in deductibles or a price increase of 40 percent or 50 percent." But her worries are not over.  The companies that have been selling Tarragon coverage for employee lawsuits and general liability have told her they will not be  renewing.  The alternative?  "I'm hearing as much as 100 percent increases," Ms. Slowther said.

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