Since the attack, I've also been surveying another vast area of damage not visible to the general public–the devastation of the insurance industry.

First, there were the hundreds of industry workers lost in the WTC attack–the vast majority working for the world's two top brokers, Marsh and Aon. Insurance brokers work in a very tight-knit community where everyone knows one another, and where players frequently switch teams. On a personal level, the loss was beyond belief, particularly for the many who worked with or competed against those who died in the attacks.

Second, Marsh and Aon and other insurers and brokers who lost employees and office facilities in the catastrophe had to put their risk management programs to the ultimate disaster recovery test. It's hard to imagine anyone actually planning for a contingency such as this, yet the brokerages and insurers affected managed to keep their operations up and running. That was good news for policyholders, who are depending on the insurance industry to help them recover from the worst man-made disaster in U.S. history.

Third, insurers and reinsurers will be paying out tens of billions of dollars in damages, not only to those in the “Ground Zero” area, but also to hundreds of firms surrounding the WTC complex, as well as to some many miles away who had business relationships disrupted with companies in the target zone.

Surely, insurers never intended to cover a loss like this. No one–perhaps outside of novelist (and former agent) Tom Clancy–ever imagined such a catastrophic assault.

Yet the war risk exclusion does not apply, since it appears that this dastardly attack was the work of terrorists operating outside national boundaries. Thus, insurers will dutifully pony up their share of the damages and do their part to get affected clients up and running again. At the same time, they will lobby hard to establish a backup federal reinsurance mechanism in case anything like this ever happens again. (The alternative would be blanket exclusions of terrorism risks, which would be an economic catastrophe all its own.)

The biggest challenges for brokers lie ahead. The property-casualty market was already hardening, although at a reasonable pace before Sept. 11. But with the enormous losses from the terrorist attacks, on top of a weak stock market, premium rates should rise in a hurry, while terms and conditions tighten.

For many years the industry has scrambled to compete in a buyer's market so skewed that the first question from risk managers to their brokers at renewal time was: 'So, how much of a premium reduction did you get for me this year?' Now we have a brutal seller's market in store and a mad scramble for cover.

Here is where agents and brokers will prove their mettle–shopping, negotiating, leveraging their relationships with carriers; establishing loss control programs to make risks more attractive; setting up self-insurance facilities if traditional risk-transfer becomes too costly–that is, if they can find a reasonable front and affordable reinsurance to back up the client's captive program.

Risk management and loss control skills, market knowledge, and connections are critical now. It was easy for brokers to look good in a soft market, as lower prices and broader terms were easy to come by. Now buyers will stick only with those multitalented, resourceful producers who can deliver adequate, affordable coverage, or come up with new risk financing solutions in a crisis.

Thus far, those in the insurance community have every reason to be proud of their response to this catastrophe.

In terms of pure charity, the Independent Insurance Agents of America (with its “America's Survivor Relief Fund”) and the National Association of Mutual Insurance Companies (with its donation of more than $400,000 originally budgeted for its cancelled annual conference), as well as others in the industry have generously raised funds for the victims of Sept. 11 and their families.

In terms of paying claims, there has been one major coverage dispute. Swiss Re and the owner of the lease on the WTC are battling in court over whether the Sept. 11 claim involves one insured incident (it was a single terrorist attack, says the insurer) or two (it was a pair of plane crashes, says the policyholder), with $3.5 billion in coverage at stake.

It remains to be seen whether there will be more legal nitpicking over coverage terms. For now, however, it seems the industry is glad to do its part, and then some, to get this country back on its feet. The industry sees the bigger picture and realizes what's at stake.

My thoughts keep drifting back to a makeshift memorial that was set up at the southwestern tip of Sinatra Park here in Hoboken, with pictures of those lost, candles and flowers, flags and poems lying in a pile facing lower Manhattan. A portion of one anonymous poem dedicated to the victims stands out in my mind: “Your lives were not lost in vain. Your sacrifice has united this country against a great evil. Your family, friends, colleagues and countrymen shall prevail.”

Amen.

Sam Friedman is editor-in-chief of National Underwriter. He can be reached at [email protected].

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, October 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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