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How 9/11 redefined insurance

By Jay MacDonald ·
Friday, September 9, 2011
Posted: 9 am ET

When terrorists attacked New York's World Trade Center 10 years ago this weekend, it was the largest single insurance loss in history, resulting in an estimated $33 billion in insured damages and shaking the insurance industry worldwide.

Robert Hartwig, president of the Insurance Information Institute, witnessed firsthand the attacks on what is now known as Ground Zero with the same numb incomprehension as the rest of us watching in horror on morning TV around the country.

When one day you visit the Freedom Tower, you can thank our insurance industry for making it possible.

"The event was absolutely unprecedented in every single respect, producing the largest property losses ever, the largest workers' compensation losses ever, the largest aviation losses in history," Hartwig says in a special online remembrance. "It sent shockwaves through the global insurance industry around the world. Insurance is a global business and some 200 insurers wound up sharing in the losses associated with the 9/11 attack."

The attack shattered our comfortable illusion that it can't happen here. With the future suddenly interrupted by shock and uncertainty, Hartwig says insurance companies were quick to partner with the federal government in 2003 on the Terrorism Risk Insurance Program. It makes terrorism insurance available and affordable to protect similar national landmarks as well as power plants, airports, shipping ports and sports stadiums.

How does the insurance industry fare 10 years after 9/11?

"It's safe to say that no event has more fundamentally transformed how insurers think about risk than the Sept. 11, 2001 terrorist attack; not Hurricane Katrina, not the Japanese earthquake, nothing, on a global scale," Hartwig says.

Today, insurers measure commercial property and casualty risk, especially to dense urban areas and such potential targets as airports, stadiums, power plants and shopping centers, not just against 9/11 but on the possibility of an even larger disaster.

For that reason, the Terrorism Risk Insurance Program is slated to continue through 2014.   

"There would be a sharing of losses in the event of a very large-scale attack, whereas smaller attacks, the losses would be absorbed by the insurers themselves," Hartwig explains.

So one day when you see or visit the Freedom Tower currently under construction at 1 World Trade Center, which will stand not only as the tallest building on our shores but a symbol of America's response to lawlessness and murder, lift a glass to the insurance industry that made it possible.

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1 Comment
September 16, 2011 at 5:32 am

Insurance works on perceptions, not reality. Any risk that can be made to look bigger than it really is, is more profitable. You're not in the risk management or actuarial business, so you can't assess the true risk (represented as premiums) of any peril. And, no, competition does not bring price down, any more than casinos - or banks, for that matter. Insurers play on emotions (death and stranding your family without money) or perceptions (flying is dangerous) or terrorism (current risk-dujour, overhyped danger where little/none exists). All profitable ... and, they have plenty of time to figure out ways to keep you from collecting in the end. Takeaway? Buy insurance from someone you trust (i.e., USAA), and don't depend on insurance to solve everything.