Landlords and occupiers still don’t realise the impact the World Trade Centre disaster will have on costs and are still not taking disaster planning seriously, according to the UK’s leading risk assessor. Some buildings will be virtually impossible to insure, Bill Gloyn, chairman of the Aon European Real Estate Practice Group told a seminar at the British Council for Offices conference in Edinburgh.
The New York attack was the last straw for a hard-pressed insurance sector which had been subsidising insurance for a decade with investment income. The stock market crash had dried up that source and already driven big names into bankruptcy before September 11. Now insurers will take a much tougher stance.
‘In the past insurance was ignored as a minor cost,’ said Gloyn, who is leading talks for the British Property Federation with the government on problems faced by the industry. ‘Now it must be taken seriously.’ Occupiers had stopped worrying about terrorism long before September 11, marking it down to 8th in top 10 league of risks. By last summer it had disappeared off the list. Now they face turmoil.
Reinsurers, which underwrite risks laid off by the insurance industry, have withdrawn terrorism cover from all primary polices since January. Talks have been taking place with the government about filling the gap via the Pool Re system set up after IRA bombings. But they have only just started and will need new legislation, which the Treasury is unlikely to support. Some buildings such as lightweight structures made of composite panels for food storage will be uninsurable. The attitude to empty buildings will also become tougher. Rates are hardening and coverage is narrowing.
Even buildings which have already been covered could be a problem. Many of the collapsed underwriters were involved in ‘long tail’ policies which could now be valueless. Older buildings could suffer because they do not match standards set by the UK Loss Prevention Council Design Guide. This was launched in 1996 and set tough standards on design but was not imposed because of the soft market.
‘The guide is now likely to be a requirement and retro-fitting will be expensive or impossible,’ said Gloyn
All property will be harder to insure. Policies will need to be spread over more companies in more layers. Contractors and landlords will need to ensure the financial strength of their insurers while tenants may be hit by demands for extra payments. ‘Watch out for landlords that decide certain risks are not worth insuring because of the cost,’ warned Gerard Tomnay, commercial property partner with lawyers Nabarro Nathanson.