Insurance Shock

Business executives and public officials lately have been receiving a new kind of letter bomb: their insurance bill. These days many letters from insurers announce increases in annual premiums for liability coverage of 50%, 100% or even 1,000%. The rocketing price of insurance has created a crisis for everything from manufacturers to municipalities. Doctors, tavernkeepers, high schools, bowling alleys, exterminators and banks are all being hit hard. Says Don Benninghoven, executive director of the League of California Cities: "This is the most serious issue I can ever remember cities dealing with." In the end, citizens and consumers will pay the bill in the form of higher taxes and prices.

Drained by a growing number of huge personal-injury awards, insurers are struggling to increase profitability by boosting rates and even refusing to renew risky policies. Many of their rejected customers are having a hard time finding insurance at any price. Says Robert Rearden, president of Duncan Peek, an Atlanta insurance-brokerage firm: "At times it's extremely frustrating. ) The other day a salesman here said to me, 'I need an extra day off. It's tiring delivering all this bad news.' " Many businesses and local governments have been forced to go uninsured, thereby risking bankruptcy or at the very least a fiscal squeeze if they encounter a large lawsuit.

The insurance shock is forcing communities to curb services and boost taxes. Northfield (Ill.) Township High School District 225 canceled its summer basketball and baseball programs this year for lack of coverage. In Blue Island (pop. 22,000), a Chicago suburb, citizens held a noisy meeting last month to debate a 30% tax increase. Reason: the city's insurance premiums had jumped from $175,000 to $435,000 in one year. In July the Southern California Rapid Transit District came within nine hours of idling its 2,500 buses for lack of insurance. The annual premium rose from $67,000 to $3.2 million.

Businesses have been hit just as hard. Even firms that have never had a suit filed against them have difficulty if they are in a troubled industry. Day care has become a high-risk business because of sexual- abuse cases. Liquor stores have been denied coverage because they are sometimes liable for death and injury caused by drunken customers. Bismarck Food Service, which sells beer at Detroit's Tiger Stadium, saw its insurance bill increase from $50,000 in 1983 to $1 million.

The airline industry could face large insurance-premium increases as the result of this year's string of fatal accidents. The crash of a Japan Air Lines 747 is expected to cost the carrier and its insurance company as much as $200 million in compensation to victims' families. Last week Delta Air Lines, facing heavy costs from its L-1011 crash in Dallas, asked a U.S. District Court to require the Federal Government to share responsibility. The carrier contends that federal air-traffic controllers were at fault in the crash because they failed to warn the pilot sufficiently of bad weather conditions.

The rise in product-liability lawsuits, notably in the case of the Dalkon Shield intrauterine birth control device, has resulted in ballooning insurance rates for manufacturers. And Union Carbide's Bhopal disaster, which prompted more than $100 billion in lawsuits, has helped make toxic-pollution insurance virtually impossible for most chemical companies to obtain.