September 11 Insurance Industry Finance Essay

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Sept. 11 attacks exposed insurance industry to new and unheard costs of global terrorism. Terrorist attacks on Sept. 11 were the most expensive insurance event in history till that date. Sept. 11 attacks cost about $40 billion to the insurance industry (Hartwig, 2002). The previous biggest single event insurance loss was $19 billion for Hurricane Andrew (Hartwig, 2002). Insurance losses from Sep 11 attacks are almost double the losses from any event before that. The most significant aspect of this huge insurance loss was that insurance companies paid claims for an event that wasn’t even properly priced in premiums. Terrorism related insurance was covered but not clearly defined and demarcated in insurance policies. “The unthinkable was insured” said Mr. Leidthe (Williams, 2002). The extent of Sept. 11 losses has changed the risk profile of insurance industry dramatically. Lloyd’s Chairman S. Riley said “In a world post September 11, when the very nature of risk has so fundamentally altered..” (Lloyd’s, 2001). Extent of insurance losses Sept. 11 attacks cost about $40 billion to the insurance industry (Hartwig, 2002). The majority of losses were borne by the non-life insurers with life insurers paying about $2.7 billion only. Though life insurance loss is not significant as that of non-life insurance, yet it was substantial figure in itself and by far the highest single event life insurance loss till date. The table 1 below shows the line of business losses for Sep 11 attacks. The highest single line loss was suffered for business interruption and its share of total losses was 27 percent. The combined loss suffered by property line was 24 percent. Table 1 – Line business losses for the insurance industry

$ billion

Insurance Losses


Property – WTC 1 & 2



Property – Other



Business Interruption






Workers compensation












(Source: Insurance Information Institute, 2002a) The losses incurred by the insurance industry were unprecedented in many aspects. It was the largest single event insurance loss – both in terms of natural and man-made disasters till that date. It was also the first time when losses were catastrophic in life insurance, disability and worker compensation insurance sectors.

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