NCPA - National Center for Policy Analysis

Insurance Industry Stabilizes -- Without Government Help

February 27, 2002

Shortly after the Sept. 11 attacks, U.S. insurance companies and their lobbyists started issuing dire predictions that without aid and protection from Washington, they would fold and bring the entire economy to a halt. Banks would stop lending, real estate transactions would cease and new construction would be stopped in its tracks.

But some five and a half months later, without the assistance it sought, the nation -- and its insurers -- continue to do business.

  • More than a dozen entrepreneurial insurance companies are now collectively offering up to $500 million in terrorism coverage per building -- which is enough for most commercial properties.
  • Dazzled by the enormous premiums that terrorism coverage is generating -- sometimes 10 or 20 times basic commercial property coverage -- several insurers are considering offering it.
  • For their part, businesses are either paying for terrorism coverage or betting that they are unlikely targets and can put off buying policies until premiums drop.
  • Scores of businesses are talking with consultants about setting up their own insurance companies.

For example, the Air Transportation Association of America says it hopes to decide soon whether to start up an insurance cooperative for the nation's largest airlines.

Some advocates of government intervention still predict that economic calamity is just around the corner, one calling it "a slow-moving glacier that will destroy everything in its path."

But Kenneth A. Froot, a financial economist at Harvard Business School, expresses the prevailing view. "It looks like the market is beginning to work this out," he says. "We haven't moved to the point where we have as much coverage as we need. But we should see continuing improvement over the next 12 to 18 months."

Source: Joseph B. Treaster, "Rethinking Dire Warnings by Insurers After Sept. 11," New York Times, February 27, 2002.

 

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