By Jorn Madslien BBC News Online business staff

The bill for insured losses faced by the global insurance industry in the wake of last year's fatal 11 September attacks has reached $50bn (�33bn), according to industry estimates.

There will be strong rate increases in the reinsurance market that will put is in the position to earn back these losses in the next few years

Wilhelm Zeller Chief executive Hannover Re (23 September 2001)

Total estimates of the losses have trebled since last September, forcing leading reinsurers to set aside more cash to cover claims from insurance companies.

In July, the world's largest reinsurer, Munich Re, raised its provisions for 11 September from $2.2bn to $2.7bn, soon after the Lloyd's of London insurance market raised its estimate of the losses to �2bn ($3bn) from a previous estimate of �1.3bn.

And yet, the widespread sympathy initially extended to the industry has recently turned to annoyance and anger at the way it has passed the losses down the food chain.

Excessive premiums?

A warning that premiums would rise was issued within two weeks of the attacks by Wilhelm Zeller, chief executive of the world's fifth largest reinsurer, Hannover Re.

Golden Gate Bridge faces higher insurance costs

"There will be strong rate increases in the reinsurance market that will put is in the position to earn back these losses in the next few years," Mr Zeller said in an interview with Euro am Sonntag.

The soaring insurance premiums have angered consumer groups and companies alike, especially since they have often been accompanied by reduced cover and higher excesses payable in the event of a claim.

Industry hit

The rising premiums have spelled disaster for insurance customers, with many being forced to opt for so-called self-insurance, or no cover at all.

Cynics say the insurance industry has taken advantage of the attacks

In Washington, the owners of an office building a block away from the White House have been told that its building insurance will double to $4m from $2m last year.

The World Cup organiser Fifa says the cost of organising the recent tournament in Japan and Korea soared due to higher insurance premiums.

And some observers have predicted that the tolls on San Francisco's Golden Gate Bridge could rise to pay for higher insurance costs which have been imposed along with the withdrawal of its terrorism cover.

Beyond terrorist cover

Rising insurance premiums have come across the board.

Insurance companies have lost out from falling stock markets

In the UK, both the British Insurance Brokers' Association and The Federation of Small Businesses have warned that soaring insurance costs - especially obligatory employers' liability insurance premiums - are forcing many small firms out of business.

While in the US, the leading home insurer State Farm raised its premiums by 20% last year, blaming the ageing US housing stock, the high cost of home repairs, rising mold damage claims and bad weather.

Health care premiums are on the up too, having risen 11% last year and 13% this year, and the retirement system for California's public sector has predicted that its health care premiums will rise 25% in 2003.

The industry insists that the cost of health care insurance has risen because new, expensive treatments have been invented.

But cynics find it curious that these premiums have all risen so much right now.

Boom times

Blunt observers have accused the insurance industry of using 11 September as an excuse to raise premiums across the board in order to make up for falling profits during recent years.

Indeed, insurance rates are at a four decade-high, having surged more sharply than they did in the wake of the Hurricane Andrew and the Piper Alpha oil rig disasters in 1993-94.

Insurance industry officials say the attacks have changed the industry's attitude to risk.

There is a greater awareness that if the industry can push more costs onto their customers, they too will become more risk averse and in the long run this should reduce overall claims which currently run at historic lows.

Cost cutting and efficiency improvements within the industry have also helped the industry's profits recover to healthy levels in recent months.

Necessary shake-up?

But in a sense, attacks acted merely as a wake-up call for an industry that was already enduring unsustainable losses, some analysts say.

In 2001, insurers paid out almost $9bn more to cover losses and expenses than they received in premiums.

And even before the attacks, many insurance companies - especially life insurers - had been hit by sliding stock markets which eroded their investment income and reduced their capital reserves.

In fact, insurance premiums were already heading higher.

The attacks may have merely speeded up the process.

Government bailout

What has incensed critics the most about the rising premiums is that in many cases the terrorism risks faced by the insurance industry are smaller than they ever where.

Since 11 September, many governments have stepped in to offer cover in areas deemed to risky by the insurance industry.

The UK government recently extended its terrorism insurance for commercial property to cover all risks, not merely fire and explosion, and it has vowed to cap the losses suffered by the industry at �30m per event and �60m per year.

Germany and France have both set up similar terror insurance pools with billions of euros in reserves.

Spain's state insurance facility guarantees private insurers' cover for extraordinary risks.

While the US wants to protect the insurance industry from losses greater than $10bn from a terrorist attack.

In addition, both the US and European governments have been forced to step in to offer cover for the airline industry after the insurance industry cancelled all third party war risk cover after the attacks.

In order to prepare for the future, the airlines have been forced to look for long-term support from governments to set up their own mutual insurance companies after most traditional insurers have refused to return to the market.