Insurance rates spiral up in wake of Sept. 11

Industry seeks federal backing, saying it could cover only 20 percent of another attack.

Everyone from commuters to school kids is paying a price for rising insurance costs – due in part to the recent spike in terrorism-coverage rates.

It's a subtle ripple-effect of Sept. 11. For example:

• Tolls on San Francisco's Golden Gate Bridge may jump from $3 to $5, in part because, starting today,the span's insurance costs $1.1 million a year – more than double last year.

• Airline passengers, who used to pay two or three pennies toward terrorism insurance each trip, will soon be paying about 70 cents – though that's far less than the $2.25 that had been expected.

• Lease rates – and thus retail prices – could jump at Minnesota's Mall of America because owners had to buy a terrorism policy covering $100 million in potential damages for an undisclosed price.

• Forty high-schoolers in Roxbury N.J., had to cancel a study-abroad trip to Australia this summer because their school couldn't find travel insurance that covers terrorism.

Today President Bush is set to meet with insurance executives, labor leaders, and others to push Congress to address these problems with a federal safety net for Americas' insurance firms. Supporters of the safety net argue that Uncle Sam's backing would stabilize the insurance, commercial real estate, construction, and other industries – thus boosting the economy.

Others say the insurance industry is in far better shape than many expected after Sept. 11 and doesn't need federal support. They say federal backing will create a virtual welfare program for insurance firms. One possible effect: softening vigilance in mandating that structures they insure are terror-proof. This could weaken America's safety in the event of another attack.

Despite dire predictions about the industry after Sept. 11, "Lo and behold the sky didn't fall," says Travis Plunkett, of the Consumer Federation of America, a liberal group critical of the federal plan.

The idea for an industry safety net was sailing through Congress last fall. It passed the House, but stalled over a tort-reform debate in the Senate. (Tort-reform backers wanted to limit terror victims' rights to sue for negligence after an attack – for instance if a poor-performing guard was allowed to stay on the job). The House-passed plan would have insurance firms pay the first $1 billion in terrorism losses. The government would pay 90 percent of further claims. Momentum appears to be building again.

Backers say places like the Golden Gate Bridge are emblematic of broader industry troubles. The bridge's new insurance policy costs $1.1 million per year for $50 million in coverage – and doesn't include protection for terrorism. Last year's policy cost $500,000 for $125 million in coverage – and did cover terrorism. So the landmark isn't covered for attacks, despite assertions by California Gov. Gray Davis (D) that it was targeted last year.

Supporters of federal backing also point out that the Sept. 11 attacks represent the biggest payout for physical damages in US history. Estimates for the final price tag: $35 billion to $50 billion. Furthermore, they say, many malls, bridges, hotels, skyscrapers, and other commercial properties can't find terrorism insurance. Those that do can't afford full coverage. Furthermore much of the coverage being sold excludes nuclear, chemical, or biological events, meaning it covers nonnuclear bombs or other explosives.

Without federal help, "we're postponing a day of reckoning," says Robert Hartwig of the Insurance Information Institute in New York. If another Sept. 11 event happens, he says, perhaps just 20 percent of losses would be covered. Certainly the federal government would step in. But not knowing the details of Uncle Sam's role leaves great uncertainty in a market that dislikes risk.

"There are a lot of unanswered questions," says David Mair, president of the Risk and Insurance Management Society in New York. "As a business owner you don't want the uncertainty of that."

Yet others say the industry is doing better than expected. They point to major airlines' plan to form their own insurance group. Faced with $1.4 billion per year for "war risk" insurance – compared with $13 million pre-9/11 – they've banded together and will pay about $400 million per year. The plan relies on some federal backing that would be phased out.

Overall, insurers have raised $25 billion in new capital since Sept. 11. Stock prices for major insurance firms are strong. And at least eight new companies or joint ventures have formed to offer terrorism insurance, as high premiums make it an attractive market. Though rates have risen sharply since Sept. 11, large increases were already happening because of difficulties in the economy.

Finally, a federal backstop could drain incentives for terror-proofing buildings – with wider staircases for quicker evacuation or stronger structural supports. "It's going to stymie those efforts," says Mr. Plunkett.

As for the New Jersey high school, it's waiting to see if the industry – government-backed or not – will develop policies that let it continue a 10-year-old exchange program. Says principal Joseph Toohey, "We're hoping we'll be able to resume it next year."

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