The terrorist attacks on the United States on September 11, 2001 resulted in one of the largest insurance losses in history. Reports differ. Some sources state that Hurricane Katrina caused greater losses, others find 9/11 to represent the most catastrophic insurance loss. All agree that losses exceeded $32 billion at a time when it was estimated worldwide insurance reserves were approximately $300 billion.
The loss involved property insurance, workers' compensation, liability insurance, airline insurance, and many other facets of the insurance market. And today's business insurance market was changed forever on that day.
Erwann Michel-Kerjan, managing director of of Wharton's Risk Management and Decision Processes Center, has analyzed the changes in risk management and insurance since 9/11. In a recent article from Wharton, the immediate changes over the course of first three to four years are outlined:
"In a 2010 paper, Michel-Kerjan studied the evolution of terrorism insurance in the U.S. since the attacks. Prior to 9/11, he says, terrorism risk was included as an unnamed peril in most commercial insurance contracts. The attacks jolted the industry, causing an estimated $23 billion in damages, making it the second costliest disaster in U.S. history after Hurricane Katrina. By early 2002, 45 states allowed insurance companies to exclude terrorism from their corporate policies, leading to the creation of the Terrorism Risk Insurance Act (TRIA), a public-private program that covers up to $100 billion of insured losses. Similar programs exist in countries including Germany, the United Kingdom, France and Australia."
It is interesting to look at financial articles from the years following 9/11. One dealt with Maurice "Hank" and Jeffrey Greenberg (AIG and Marsh) taking steps to take advantage of the "hard" market in terror insurance following 9/11. Both were out of their respective companies by 2005 with "Hank" Greenberg being investigated by New York State Attorney General Elliot Spitzer. By 2007, Mr. Spitzer became Governor of New York, but resigned in March, 2008, after prostitution allegations. And, later in 2008, the financial markets collapsed leading to "bailouts" of AIG by the federal government.
And, as always, it is interesting to think about the reaction of people if you were to tell them, on September 10, 2001, that all of these things would come to pass in the next ten years.