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New York City Comptroller William C. Thompson, Jr. today released the results of a survey demonstrating a dramatic increase in commercial insurance premiums coupled with a significant decline in the availability of insurance since the September 11 attack on the World Trade Center. The Comptroller's report, entitled "One Year Later: The Effects of 9/11 on Commercial Insurance Rates and Availability in New York City," surveyed agents and brokers serving businesses in New York City.

"Insurance companies are taking advantage of New Yorkers," Comptroller Thompson said. "They are not helping the City right now, and this is undermining our ability to retain and attract new business. Once again, New Yorkers are being penalized."

The Comptroller's Office asked about changes in the price and availability of nine lines of property and casualty coverage since September 11th, compared with the previous year. The survey determined that New York City has experienced premium increases markedly higher than those in the rest of the country after September 11th.

Businesses located in high-rise buildings in Manhattan, particularly those in, or even near, landmark or "trophy" properties considered by insurers to be at risk of becoming terrorist targets had the greatest increases in premiums. Large sized accounts, with premiums over $1,000,000, experienced an average 73.3% increase per policy, while medium-sized accounts, those paying premiums between $50,000 and $1,000,000, encountered an average increase of 49.5%, and small-sized accounts, which pay premiums of less than $50,000, an average 39% increase.

In a meeting with the Comptroller's Office, members of the Real Estate Board of New York (REBNY),which includes many of the city's largest policy-holders, described "serious" problems large commercial tenants have experienced in obtaining affordable coverage. The representative of one landmark property said that its property insurance premium had increased almost 700% without terrorism coverage for one-third of the property's value. Another reported he approached 25 insurers in the domestic and foreign property market, none of whom was interested in insuring his portfolio of properties at any price.

Thompson also expressed concerns about the effect of the increases on small businesses.

"Many of these businesses may be at greater peril from rate increases since they are least likely to have the resources to tolerate significantly increased costs," he said. "New York State does not allow insurers to exclude terrorism, so insurers are restricting the coverage they will write, or drastically increasing rates to protect themselves from potential catastrophic losses."

The Comptroller pointed out that September 11th was not the only factor to trigger the increased premiums, and that insurance rates already were on the rise before the attack. Higher than anticipated losses and the economy, which already was slowing before the attack, also contributed to rising prices and a tightening insurance market.

"Premiums rose sharply after the terrorist attack because an additional factor came into play, namely a sense that risk exposures were higher than previously estimated," the Comptroller said.

"New York businesses and residents are being asked to shoulder a huge hidden tax burden through the dramatic increases in insurance premiums levied following 9/11," said William C. Rudin, Chairman of the Association for a Better New York and President of the Rudin Management Company. "These increases unfairly target our city, which has already suffered enough, and other urban centers across America that are potential terrorist targets. We urge Congress to return to Washington and pass legislation that will allow rates to fall and bring normalcy back to these markets."

The survey discovered a "troubling" decline in the availability of various types of commercial insurance after the attack. Agents and brokers consistently struggled to locate coverage for companies comparable to the previous year.

For large accounts, the percentage of respondents who reported that coverage was either "readily available" or "somewhat available" fell from 84.1% for the year before September 11th to 20.2% for the year after the attack - a 63.9% difference. Medium-sized accounts also showed a significant rise in scarcity, with 87.1% of respondents finding coverage "readily" or "somewhat available" before September 11th and only 28.0% making that assessment afterward. Similarly, the number of respondents reporting that coverage for small accounts was "readily" or "somewhat available" decreased from 85.2% for the year before September 11th to 34.3% for the period after the attack.

Survey respondents reported fewer insurance companies are willing to write additional business or renew existing business in New York City, especially Manhattan, after September 11th. The insurance lines most affected by the attack were business interruption, commercial property, general liability, umbrella and excess liability and workers compensation. Survey respondents also reported that:

· Premiums for business interruption increased by 51.7% and commercial property premiums rose 74.4% after September 11th, as compared with 7.0% and 10.3% in the previous year.

· Premiums for general liability coverage increased by 50.5% following the attack, compared with a 10.9% increase the previous year.

· Construction liability premiums increased by 101.6% since September 11th - the highest average premium increase reported in the survey. At the same time, survey respondents noted its availability was very limited.

"Since last September's tragic attack, the soaring cost of real property insurance and the declining availability of some kinds of coverage, including the absence of terrorism insurance, have posed increasingly serious risks to our city's economy," said REBNY President Steven Spinola. "Since individuals, governments and other entities across America are invested in high-value New York buildings through their pension funds, insurance policies, bank deposits and bonds, this situation calls for remedial action to protect the nation's stake in these billions of dollars' worth of real property.

Comptroller Thompson issued a series of recommendations to slow the escalating rates:

Federal Terrorism Insurance. I fully support H.R. 5523 introduced in the House of Representatives by Congresswoman Carolyn Maloney and the New York City delegation and S. 3055 introduced in the Senate by Senators Hillary Clinton and Charles Schumer. These bills would establish a backstop measure to provide temporary support in the form of loans and or governmental reinsurance for insurance companies writing terrorism insurance. This is important because such a proposal might increase confidence in the insurance industry writing insurance in New York City.

Expansion of Risk Financing Options. As an alternative to purchasing insurance in the commercial market, large companies, groups of companies or industry associations should consider establishing alternative financing strategies, including purchasing groups, reciprocals, other self insurance arrangements, and captive insurance companies. The State Insurance Department should encourage expansion of these alternatives, which will allow businesses to mitigate the effects of price increases and supply shortages in the retail market.

New Insurance Companies. States that believe that insurance premiums are too high or insufficiently available can encourage the creation of new insurance companies. This has happened in many states for the sale of workers' compensation and medical malpractice insurance and should be considered in New York State in order to create more capacity in the commercial insurance market.

Risk Reduction. Companies and local governments, including New York City, are investing in physical improvements and in increased coverage by security personnel to improve security and to reduce risks. This effort should continue in the City so that local businesses will become more attractive to insurers, which presumably will result in lower premiums and greater availability.