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There is no doubt the September 11 holocaust may have a modest impact on the global insurance. However, the industry is going to emerge as a strong sector with fewer players.
In the wake of the September 11 holocaust it is not surprising that the insurance industry is apparently heading for trouble. The tragedy has affected individuals and businesses to an unprecedented degree. The global insurance industry is struggling to deal with the largest single loss in history. This is a colossal loss and it is difficult to say the insurance industry can sail through without suffering some setbacks. The events have a profound effect on the insurance world. Current estimates of the combined loss from the World Trade Center (WTC) disaster range from approximately $40 bn to $75 bn, and many observers believe that these figures may well grow with the passage of time. The attack has changed the perceptions of risk. So, too, is the demand for insurance cover. Is it good news for insurers? Insurance companies can easily pay out the estimated claims, but the industry argues that it will take several years for insurance companies to rebuild the capital they would need for claims. The insurance industry has begun to indicate that it cannot cover losses associated with future terrorist attacks.
Experts say that the industry is currently able to cover billions of dollars in additional claims. Despite this, many insurers and reinsurers have either dropped coverage or raised premiums dramatically in recent past, claiming that they cannot afford future claim payouts. Furthermore, with 70 percent of reinsurance policies for property and casualty insurance set to expire at the end of the year, observers are worried that some businesses will be troubled if insurance companies refuse to extend coverage or charge too much for renewals. In the aftermath of attacks on Insurance industry Dr. K C Mishra, Director, National Insurance academy, Pune, says, "I expect to see a general flight to quality, a furthering of market concentration through consolidation, an increased need for capacity as companies take a new view of exposures and risk management, and an acceleration of rate hardening in many lines of business. I also anticipate changes to programs, program terms and conditions in both the primary and reinsurance markets, the entry of new specialty focused capital and the potential for a new generation of capital markets products and solutions, and finally, the possibility of governmental support or intervention of some kind."
The attack had a massive impact on the world's financial centers it has changed the game of the insurance rules. The insurance companies are learning from an unwelcome and unexpected lesson in systemic risk management in terms of how much New York's business can be picked up elsewhere, and how fast in response to catastrophe on the other side of the world. The tragedy has affected every line of business _ life, property and casualty, auto and commercial lines. Says US firm Weiss Ratings (independent insurance ratings firms), "The tragedy may have a modest impact on the property insurance industry, according to early analysis. But insurers with workers' compensation or business interruption exposure are most exposed since there is no limit to the amount of claims they could incur." Standard & Poor's (S&P) says direct financial losses will probably exceed the largest insured losses ever seen. However, the insurance industry is strongly capitalized and a big financial hit will not threaten the stability of the system. Dealing with terrorism as a coverage will be something about talking next 10 years. This is going to be a back-to-basics market, like underwriting, assessing risk, pricing risk and spreading risk.
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