NEW YORK -- The collapse of the World Trade Center is likely to become the nation's most expensive man-made disaster ever faced by the insurance industry. It also could lead to higher premiums and policies that restrict liability for acts of terrorism.
Estimates of the payout varied Wednesday from $5 billion to $25 billion. But most agree the figure will far exceed the cost of the largest such disaster to date: the 1992 Los Angeles riots, which cost insurers $775 million, or $1 billion in today's dollars.
"We can most likely say billions instead of millions," said Andrea Pound, spokeswoman for the International Underwriting Association in London.
Natural disasters tend to cost more and often hurt insurance companies more because claims are concentrated in homeowners' policies. The biggest disaster was 1992's Hurricane Andrew, which resulted in $15.2 billion in claims -- an amount equal to $19 billion today.
Claims resulting from the attacks that destroyed the World Trade Center are likely to have a less severe impact. They will be spread across property, life and casualty policies and insurers in different countries shared the risk.
Robert Hartwig, chief economist at the Insurance Information Institute, said the biggest payout in this instance may not be for property claims.
"Life insurance could be the sleeper of this disaster" Hartwig said.
Major insurance companies have said it is too early to assess the financial impact of the attacks, but several major reinsurance companies -- which provide backup insurance to insurance companies -- said they would be able to withstand the impact.
Switzerland's reinsurance giant Swiss Re said it alone expects to cover $730 million in losses, and German reinsurer Munich Re estimated its exposure at up to $903 million.
Lloyds of London insurance market warned that any specific estimate of the absolute cost was speculative.
"The situation in New York and Washington is evolving continually. The global social and economic effects are only just starting to be felt. Any calculation of the total losses so soon after the event can only be deeply flawed," said Lloyds chairman Saxon Riley.
Still, many insurers are likely to raise rates and, in writing new policies, create more exclusions or restrictions on future claims related to acts of terrorism. It wasn't known whether any of the trade center tenants had policies with such exclusions before Tuesday's attack.
"This really opens up everyone's eyes to the level of risk from terrorism," said Matthew Mosher, group vice president of the property and casualty division of A.M. Best Co.
Some experts predicted the attacks could lead to higher premiums.
"Looking ahead, people will write policies and consider whether we are in a period of accelerating terrorism activity and make that an underwriting consideration," Hartwig said.