Thursday, June 14, 2007

Richard Gage, AIA and Crackpot

Update: Since this post is now #3 on Google for Richard Gage, I thought I'd add this little bit of Gage crackpottery to the post:

Okay, this guy's been getting star billing lately in the 9-11 Denial Movement, so I thought I'd watch a little bit of his presentation at Sonoma State University. It's pretty bad; he comes off like somebody who just watched Loose Change last night and is trying to convert some of the folks around the water cooler the next day.

He does get into one aspect that I can debunk pretty authoritatively. At about 29:40, Gage discusses the insurance companies and how they made out like bandits after 9-11:

"They've raised their premiums 2000 percent on buildings and this payout (to Silverstein) is peanuts compared to this--those premium profits."

Now, as it happens, I work in the commercial real estate industry and quite commonly see financial statements on office buildings. What Gage is claiming--that insurance premiums are now 21 times what they used to be--is patently absurd. Insurance premiums (especially premiums on terrorism insurance which is not all that common) rose after 9-11, but they are not even double what they used to be.

Here's an article griping about the increase in New York City (which obviously is considered a high-risk town for terrorism):

The Comptroller's Office asked about changes in the price and availability of nine lines of property and casualty coverage since September 11th, compared with the previous year. The survey determined that New York City has experienced premium increases markedly higher than those in the rest of the country after September 11th.

Businesses located in high-rise buildings in Manhattan, particularly those in, or even near, landmark or "trophy" properties considered by insurers to be at risk of becoming terrorist targets had the greatest increases in premiums. Large sized accounts, with premiums over $1,000,000, experienced an average 73.3% increase per policy, while medium-sized accounts, those paying premiums between $50,000 and $1,000,000, encountered an average increase of 49.5%, and small-sized accounts, which pay premiums of less than $50,000, an average 39% increase.

Those are certainly hefty increases, but they are nowhere in the 2000 percent range.

Update: Luke in the comments seems to feel that even though the insurance companies raised their premiums approximately 1927% less than Richard Gage claimed, this is still evidence that they were not hurt by 9-11 but actually helped. Here's a pretty solid discussion of what happened to insurance premiums and why:

In 2001, the Amalgamated Houses co-op in the Bronx paid $287,000 in insurance premiums. The following June, when the existing policy terminated, the yearly tab rose to a staggering $427,000—an increase of almost 50 percent. And wasn’t just the Amalgamated Houses whose insurance costs skyrocketed. All across the city, in buildings both commercial and residential, premiums rose markedly.

By last year, pricing had come back down; in 2006, the costs in New York, if not the rest of the country, have flattened out. How much of a factor was 9/11 on insurance rates in the city? Did the industry use 9/11 as an excuse to raise prices, or was such an increase inevitable? What can co-op and condo associations do to reduce their insurance costs? And, most importantly, is the recent price stabilization here to stay—or is it the calm before the storm?

The basic fact is that insurance companies cannot recover excessive losses like in the World Trade Center because they are competing against other companies that did not suffer losses on 9-11. If they try to raise their premiums excessively, they will inevitably become uncompetitive and lose business. All they can do (like their competition) is reassess risk and price accordingly going forward.

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