Re: WTC Insurance

From: Greg Burch (
Date: Mon Sep 17 2001 - 06:17:33 MDT

From: "Harvey Newstrom" <>
Sent: Sunday, September 16, 2001 5:47 PM

> One thing I have not seen mentioned by anyone is insurance. All of the
> insurance policies I have seen specifically exclude war and acts of
> terrorism. As far as I know, none of the damage is covered by insurance,
> none of the equipment or losses will be reimbursed, and none of the life
> insurance policies will be honored. Does anybody have more specific
> information about the insurance industry's response to this?

Well, this also happens to be something I know a little about (along with
radio-controlled aircraft). As old timers here know, I spent a decade
working almost exclusively for Lloyds and other London market insurers,
analyzing and litigating coverage questions of all kinds up through and
including stratospheric reinsurance.

First most life insurance policies do NOT have any kind of exclusion for
death caused by war/terrorism. Dealing with life insurance first, the
threat to that industry is minimal. It is by far the most conservative and
heavily and broadly reinsured of all sectors of the insurance market and, as
a result, the losses there will have minimal impact on the direct insurers
involved and the risk-spreading function of reinsurance will be most
effective in buffering the shock.

Second, losses caused by acts of war and/or terrorism ARE often (probably
usually) excluded from most first-party property insurance. However, such
losses ARE covered separately in "war risk" policies. Whether specific
interests had their war risk insured was, of course, a matter for the risk
managers of each of the businesses involved. However, I would be greatly
surprised if the major economic interests involved directly in the WTC
attack don't have substantial war risk cover, given the prior attack on the
facility. This is considered a "specialist" risk (engendering close ties
between a few odd fellows in The Room and the chaps at Janes) and I really
wouldn't have wanted to be one of those people last week. Most of that loss
will ultimately end up in the hands of a small number of reinsurers like
Swiss Re and Munich Re. Whether the direct insurers in The Room topple
before the impact hits the gnomes (as the reinsurers are often called) will
depend on the specific terms of the reinsurance contracts.

Finally, some of the largest losses -- those caused to the airline industry
due to the immediate grounding of their planes last week and the long-term
impact of increased costs and decreased revenue -- will almost certainly NOT
be covered. The grounding will be considered "force majeur" and will be
excluded from their BI (business interruption) cover.

Greg Burch
Vice-President, Extropy Institute

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