For those who experienced the tragic events of 11 September, whether at first hand or through the media, it has become a day that they will never forget. And, along with the huge toll in human life and suffering, the destruction of New York’s World Trade Center has dealt a heavy blow to the international (re)insurance industry and its clients.
With many (re)insurers revising their estimates of loss upwards following the terrorist attack, it is clear that insured losses will outstrip those experienced from any other single event. Risk transfer through traditional means will become more expensive and more restricted, facing companies and their risk managers with a huge challenge.
Even before 11 September, property insurance capacity was becoming more limited, prices were rising significantly and terms were becoming tighter. These trends have now been exacerbated, also affecting other risks. In the longer term, new entrants, seeking to profit from rising prices, may bring some alleviation. They will need to demonstrate significant security if they are to be successful. Another fall-out from the World Trade Center’s destruction is likely to be the demise of under-capitalised (re)insurers - a warning to focus on quality as well as price when choosing risk partners.
Insurers will expect, and probably demand, that their customers take greater self-insured retentions. This, combined with the other factors, could well make alternative risk financing strategies more attractive. Captive formations are likely to increase, while those companies who already have captives will be deciding how to increase their premium flow.
