Critics say insurance rate-hikes unjustified

By Barbara De Lollis
Gannett News Service

WASHINGTON — Insurance companies are taking advantage of the Sept. 11 attacks by raising rates beyond what can be justified while trying to revoke coverage for terrorist acts, a former federal insurance administrator said yesterday.

"There's a feeding frenzy under way in insurance — a feeding frenzy for rates," said Robert Hunter, the Consumer Federation of America's insurance director who oversaw the government's last-resort insurance program for inner-city neighborhoods during the Ford and Carter administrations.

Insurance companies say their rate increases are justified given this year's unusual circumstances and other trends emerging before Sept. 11, such as rising medical and litigation costs.

"There is no price gouging going on," said Bob Hartwig, chief economist for the Insurance Information Institute, an industry think tank.

So far, Hunter said, rate increases appear to be limited to commercial customers. As of September, homeowners' rates had climbed 6.5 percent versus 3 percent the prior year — not enough to be considered excessive.

In Hawai'i, the state's chief insurance regulator has said Hawai'i drivers and homeowners are unlikely to see significantly higher premiums in the wake of the attacks. Wayne Metcalf, the state's insurance commissioner, said he will not let insurers raise premiums in Hawai'i to help meet the cost of the losses in New York.

However, nationwide, businesses are seeing surprising rate changes as policies come up for renewals, agents say.

"We're seeing very steep increases," said Alex Soto, president of Insource. The Miami insurance agency has small- and medium-sized businesses as clients. "They can range from 20 percent to 100 (percent) and 300 percent."

The biggest increases are affecting large, high-profile properties considered possible targets for terrorism. For instance, Giants Stadium in East Rutherford, N.J., saw its rates soar from $700,000 a year to $3.5 million, Hunter said.

Industry representatives say insurance companies are being hit especially hard this year. They are pocketing lower stock market returns, paying higher reinsurance premiums that exclude terrorism coverage and paying historic losses from the World Trade Center attacks, said Hartwig and David Snyder, assistant general counsel for the American Insurance Association.

Losses from Sept. 11 will cost $40 billion to $70 billion, surpassing the $16 billion in losses from Hurricane Andrew in 1992.