Insurance firms face biggest peacetime claim
Compensation
Insurers around the world were reeling yesterday as they prepared to face the biggest compensation claims caused by an act of terrorism, with some estimating the damage at more than $5bn (£3.7bn).
Industry figures said practically no major insurance company would escape from the financial cost of yesterday's collapse of the twin towers of New York's World Trade Centre.
The historic Lloyd's of London insurance market is likely to be hit severely by claims from the devastation, because it is one of the largest sources of cover in the world for the specialist insurance used to hedge against terrorism.
Yesterday, Lloyd's, which was forced to close with the Stock Exchange and was evacuated in case of a terrorist attack in London, said it was assessing the damage and would come up with an estimate within 48 hours.
Chris Harman, a partner at the insurance specialist Harman Wicks & Swayne, said: "This is by far the biggest hit to the insurance industry there has ever been outside war. The effect will be everywhere in the insurance market."
Estimates of the damage were at a very early stage yesterday, but insurers will have to pay out about $3bn. This was the price the World Trade Centre was insured for when it was leased in July by the American property company Silverstein.
The Centre was not actually insured for its full value $5.5bn because insurers took the view that a potential catastrophe would probably only take the form of one tower collapsing. Now the centre's actual owner, the Port Authority of New York and New Jersey, will probably have to make up the $2.5bn shortfall.
But the total bill for insurers is expected to be far higher than $3bn, as they will have to pay compensation to cover the damage which the collapse of the buildings has done to the surrounding area, which brokers estimated yesterday would be an extra $600m (£400m).
Companies that used the towers, the largest of which was the investment bank Morgan Stanley, will also be able to claim for damages, including loss of earnings.
Insurance companies will also be liable for damages relating to four American aeroplanes used in the attack. But they will not have to pay compensation for the damage caused to the Pentagon, one of the planes' targets, because it is owned by the government and so is uninsured. Taxpayers will have to finance repairs .
Little is known yet about how many people have lost their lives in the disaster, but life assurance claims are bound to weigh in heavily. All together, the deluge of claims on insurers will serve to increase insurance premiums on future insurance policies.
According to indications, US companies will have to pay the largest share of the insurance bill. But Lloyd's will also face "crippling" costs, which could not come at a worse time; the organisation had hoped to break into profit in 2001 after years of negative returns.
The market in the past faced heavy losses from disasters, mainly because it specialises in reinsurance used by insurance companies themselves to pass on sum of the risk to other insurers. These included £1bn payouts for the Piper Alpha oil platform disaster and the Kobe earthquake. Yesterday, the benchmark insurance share index fell 8 per cent.
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