Within hours following the terrorist attacks on the World Trade Center, global insurers and reinsurers began the task of assessing the breadth and depth of the losses incurred by their businesses.With losses separated into five categories-property damage, business interruption, casualty, aviation and liability-estimates indicate that insurers worldwide may pay out as much as $70 billion as a result of the September 11 attacks in what will represent the most expensive disaster insurers have ever experienced.
Life and property insurer The Hartford Financial Services Group Inc., Hartford, Conn., reports it will absorb a third-quarter loss of $440 million for claims arising from the destruction of the World Trade Center.
Chicago-based CNA reported $468 million in claims related to Sept. 11, well above its preliminary forecast of $350 million.
Many insurers have stated that they will be unable to support repeated losses of such magnitude, and reinsurers indicate they may begin canceling commercial terrorism-risk coverage.
Even if carriers continue to offer such coverage, it's a good bet that premiums will rise significantly, which will force corporations to decide whether or not to self-insure.
"With many firms facing higher premiums, they might choose to self-insure at least part of their operations, accepting the entire risk of loss," says Todd Eyler, senior analyst for Cambridge, Mass.-based Forrester Research Inc.
"In these cases, insurance consulting firms may be called in to manage the allocation. Overall, in the next few years, we'll see innovations to help offset the costs of risk management."
In October, New York-based Marsh Inc., a risk and insurance services firm, and Springfield, Va.-based Versar Inc., a provider of counter-terrorism, environmental and related services, entered into an agreement to provide chemical and bio-terrorism risk assessment and management services to U.S. businesses and government entities.
The agreement links Marsh's Crisis Consulting and Business Continuity Management practices with the capabilities of Versar's Homeland Defense division.
With these two entities combined, clients will be able to evaluate a spectrum of potential threats, including chemical and bio-terrorism, and take steps to address them.
"Managing risks associated with chemical and bio-terrorism calls for special expertise," says L. Paul Bremer, head of the Marsh Crisis Consulting Practice.
"Marsh Crisis Consulting provides services addressing these unconventional terrorist threats and will draw on Versar's detection and modeling capabilities."
Newark, Calif.-based Risk Management Solutions (RMS), a provider of natural hazard risk modeling, launched a Web site in early October, which was built as an entry point to the company's products and services for catastrophe and weather risk and enterprise risk management.
The site, which is located at www.rms.com, features catastrophe event reports on major insurance losses, such as the Sept. 11 World Trade Center disaster.
Yet, although online catastrophe reports may provide insurers with some insights, they don't begin to address a much more substantive issue-how to apply risk modeling to a risk that is excruciatingly difficult to quantify.
lack of integration
"Our attempt is to help clients understand their urban risk exposure, defined by the risk within a particular ZIP code or within a city block," says John Abraham, senior vice president of corporate marketing for RMS.
"Our thrust is to take the overall principles of risk modeling and apply it to this type of risk. But you have to start by having detailed data. With a data warehouse in place, our technology can extract this data and perform the proper underwriting."
Looking back on the World Trade Center disaster, Abraham says many incarriers were unable to draw correlations across the five major categories of loss.
The lack of data integration across the enterprise was a major reason for this deficiency, and will have to be duly addressed in the future, Abraham advises.
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