Staying in touch with the public: So far, insurers have maintained good graces with consumers since Sept. 11. But with rates on the rise, the industry will need to be extra diligent to stay in favor. (Selling Insight Property/Casualty).

Lots of things influence the public's attitude toward insurers, including how we tell our side of the story and how we respond to negative events. Two issues need attention right now--the Sept. 11 tragedy and rising insurance prices.

Over the past decade, satisfaction with disaster claims has been high, and rates for insurance have been stable. That means that when insurers announced that they would pay all legitimate Sept. 11 claims but could no longer cover unprecedented and unpriced terrorist attacks without a federal backstop, we had something in the bank. Right now, a majority of Americans hold a favorable opinion of insurers.

Eyes are always trained on the insurance industry after major disasters. But the uniqueness of Sept. 11--the size of the losses, the number of lives lost (many from our own industry), the consequences for insurability and the implications for public policy--makes for very high visibility.

The determination of insurance companies and aggressive work by members of the media have combined to create coverage that has generally been positive. As coordinator of disaster communications for the Insurance Information Institute, I worked closely with journalists on stories about the work that insurance personnel were doing to help families and businesses.

We also monitored what people were saying about the insurance claims process by talking with victims, the media and government officials. We established ongoing communications with insurance companies' catastrophe teams. When we learned of groups forming to help survivors, we got involved. Individual companies made extraordinary efforts, especially with businesses in lower Manhattan that were forced to close.

One important measure of satisfaction with respect to insurers' handling of the events of Sept. 11 is that news stories about claims have been declining. This is encouraging, because negative stories are the ones most likely to multiply. Another good sign is the small number of complaints. As of early December, the New York Department of Insurance had received only 57 complaints relating to the disaster--that, out of some 20,000 claims totaling $10.9 billion already paid. And at a Dec. 10 hearing before the New York State Assembly, there were no angry individuals, only a few of the usual critics. Considering that the department investigates thousands of complaints a year, this is a remarkable accomplishment.

At year-end 2001, we could say, "So far, so good." But now we face that other half of our image equation mentioned in the opening lines--rising insurance rates.

From 1996 to1998, insurance prices barely moved. Premium growth hovered at about 2%. Not surprisingly, people got used to this. So when prices began to rise in early 2000, the Insurance Information Institute warned that the days of flat or declining rates had come to an end and that consumers should expect to see their premiums increase.

Meanwhile, some accused insurers of using the disaster to raise prices, while asking Congress for help. But rate increases in personal lines, which had begun well before Sept. 11, have little or nothing to do with the disaster. They result from rising medical care and auto repair costs, fraud and litigation, and mold claims. In commercial lines, increases are being driven by recovery from years of rising costs and intense competition that pushed rates down below profitable levels. The terrorist attack that so dramatically changed the world's attitude about risk only added to the trend that was already under way. In the new risk-averse environment, corporate demand for commercial insurance is soaring, while the capital available to support coverage, particularly reinsurance, has fallen--to near zero in the case of terrorism cover. True, new capital is coming into the market. But it will be some time, if ever, before that offsets the $40 billion to $60 billion lost on Sept. 11.

A terrorism coverage plan from Congress would hasten a return to equilibrium. In the meantime, we have undertaken an extensive communications effort to explain to the public why rates are rising, with special emphasis on the industry's Sept. 11 actions.

If we do this right, the industry's outstanding performance immediately following the disaster should offset the inevitable problem of rising prices--and still leave us with a positive balance in our public-approval account.

Gordon Stewart, a Best's Review columnist, is president of the Insurance Information Institute, New York.