INSURANCE: Insurance Protection's New Price

Joseph Catanese

Countless companies have begun to reassess the adequacy of their insurance portfolio since Sept. 11. Along with changing the mentality in America, the events of that day also made it more expensive to operate a business.

The question, “what if it happened to me?” now is driving waste companies, manufacturers and financial services firms to reach new preparedness levels and seek additional protection for their employees, operations and financial future. So at a time when businesses are questioning if they have adequate protection, some insurance coverages are expected to increase 50 percent this year.

The drastic increases begin with re-insurers that provide insurance to reduce insurance companies' risks. Re-insurers now are taking precautions to avoid future heavy losses. For example, one major re-insurer has announced that it will exclude terrorism from corporate re-insurance coverage in the future. In general, the insurance industry is seeking more terrorism loss protection from the government.

Regardless of anticipated premium hikes, businesses still are reviewing their need for additional insurance coverage. For example, more companies are investigating business interruption insurance, which reimburses a business when revenues decline following a natural disaster or other disruptive event. Typically, interruption insurance compensates businesses for lost revenue and operating expenses for up to one year.

Contingent business interruption coverage and environmental impairment liability also protect against losses. Particularly, contingent insurance addresses when a company's major supplier closes due to physical damage.

Because businesses today are more interdependent on each other, more companies are considering such coverage. In the past, companies may not have been aware that such exposure existed or underestimated its significance. However, this insurance no longer is being viewed as discretionary.

To that end, risk management has taken on a new significance, too. Businesses are considering many types of exposures, such as environmental liability, for the first time. Because the likelihood and severity of significant losses appear to be more real, companies are showing a high regard for insurance as a critical component during recovery and continuity.

Rising Property and Casualty (P&C) insurance costs will clearly take their toll on corporate profitability. However, following Sept. 11th, the insurance industry demonstrated its value in helping affected businesses re-establish their facilities, cover interrupted operation costs, pay injured workers' medical expenses and provide other crucial financial assistance. And businesses began to realize that it will take more money to operate and ensure a profitable business.