The terrorist attacks in the US have sent shock waves through the insurance industry.

Insurance claims will run into billions of dollars and it is predicted that the market will become much tighter, premiums will rise, and some insurers and reinsurers will not survive.Alan Weir, a partner at City firm Ince & Co, paints a gloomy picture.

He says: 'The insurance market had already started to harden.

Then this comes along and there seems to be universal consensus that we will now have a very hard market indeed.

Everyone is convinced that this will bring down some insurers or reinsurers.'This is likely to be the largest catastrophe ever to hit the insurance market and it has affected lots of different types of insurance in a way that nothing in the past has done.'Ironically, such disasters tend to mean more work for lawyers -- and this appears to be no exception.

Mr Weir says: 'It does mean more work, no question about it.

There is more advisory work and more potential for disputes.'However, some argue that one element that sets this disaster apart from others is the predicted reluctance of insurance companies to dispute the claims heavily.Michael Mendelowitz, a partner in City firm Barlow Lyde & Gilbert's reinsurance and international risk team, says: 'There has been such a sense of shock and the market does not want to be seen to be disputing some of these points in the way it might have disputed any other disasters.'Often disasters, unless you are directly involved, are just stories in tomorrow's newspapers.

I think that because this was seen live on TV, people have been more powerfully affected by it.

There are also grave concerns about the reputation of the industry generally.'He admits, though, that the impact on the bottom line of profit may be so severe that some insurers may be forced to dispute liability.

'Success or failure in these disputes could mean the difference between economic survival or insolvency.'The recession, which analysts predict is looming, is a double-edged sword for many insurance lawyers.

Laura Wilkin, best practice partner with Liverpool-based insurance specialist firm Weightmans, says: 'The insurance industry is counter-cyclical.

If we are on the brink of recession -- as is widely believed -- we are likely to see more claims being made.'However, like many other professionals, solicitors are often primary targets for claims in ti mes of recession.

Ms Wilkin says: 'In a recession, you see a reduction in property prices, which tends to lead to claims against professionals like surveyors and solicitors.'We saw this in the early 1990s when lenders were looking for someone to pin their losses on.

We could certainly see this happening again.'And with more claims against solicitors comes an inevitable rise in premiums for professional indemnity cover.Paul Taylor, national senior partner of leading insurance firm Berrymans Lace Mawer (BLM), says: 'We will see the professional indemnity market hardening and I suspect some insurers will drop out of it.

Some professionals will find it harder to get insurance, and if we see a few uncontainable claims where the full limit of the indemnity is claimed, the market will get even harder.'However, many lawyers agree that one inevitable result of the US terror outrages will be a rise in premiums across the board.Ince & Co partner Steven Fox says: 'Following 11 September, there will be consolidation in the market.

Premium rates will rise dramatically -- war risk insurance in particular -- but also things like house and car insurance.

There will be less capacity in that there will be fewer companies out there, so they will offer fewer special deals to attract custom.'Ms Wilkin says: 'We have seen an emerging trend among some of the major insurers to exit the liability market.

This will provide a window of opportunity for smaller insurers to pick up more high-risk policies, leading to a possible diversification of the market.'The insurance market has seen a lot of consolidation of late with several mergers, such as that between Norwich Union and General Accident, resulting in larger -- but what will ultimately be fewer -- insurance companies.Mr Mendelowitz warns: 'There will be even more consolidation and only the strongest and best run will survive, which will lead to fiercer competition among lawyers for the work there is.

There will be fewer clients and the remainder will be more discriminating.

This may lead to some consolidation of insurance practices in law firms.'Mr Taylor says: 'Insurers are in a constant state of change -- it's a revolution almost.

There have been some large mergers recently, which means that the insurers can be more choosy about their law firm panels and are harder on them.

So much so, in fact that some work is barely profitable any more.'We have tried to stay on every panel but there are some which we will lose because we can't do the work cheaply enough.

There is no point having a client who can't pay enough.'The problem, he explains, is that 'some insurers choose their solicitors like they would soap powder'.

But he adds that it will get even tougher: 'Some insurers will collapse, and after 11 September -- which will have hit insurers very hard -- many will look at engaging solicitors who get results, not just go for those who are cheap.'You can get any idiot to handle a claim, but the cost of handling the claim is a tiny proportion of the claims themselves.

It is better to save money on claims than legal costs and some are now realising that.'Ms Wilkin agrees that in the long term, the mergers will mean insurers can pick and choose more, but argues that in the short term, more work will be outsourced to private practice because of the problems they experience in bringing two systems together.Mr Taylor says the Woolf reforms have led to a 'vast reduction' in the work coming through to solicitors, since they have made it far easier for cases to be settled.

'It is said that som e types of work in this sector have dropped by 85%, while in others it is 50%.'Mr Fox echoes this view: 'Things have changed with Woolf quite a bit.

I have always thought that if it's not broke, don't fix it and I didn't think it was broken.

For commercial litigation, it is not an improvement.'In construction, says Mr Taylor, the Housing Grants Act 1996 has caused numerous disputes to be settled by mediation rather than arbitration or litigation.

'There are now many fewer heavyweight, expensive hearings in construction.'He says the trend is now towards damage limitation and risk management to avoid claims and litigation if possible, and BLM and Weightmans, like many insurance practices, now offer risk management advice and claims avoidance packages.

Last month, Beachcroft Wansbroughs unveiled the re-engineering of its insurance practice, with an emphasis on handling fast-track claims in a more efficient way.

Research had shown that insurance clients thought firms were responding too slowly to changes in the market (see [2001] Gazette, 25 October, 9).Ms Wilkin says the costs regime introduced with the demise of civil legal aid and the growth of conditional fee arrangements has caused a revolution in the insurance legal sector.She says: 'There is a growing concern among defendant solicitors about the extent to which the new costs regime may be creating a two-tier system in the insurance industry.

Ironically, as insurance companies are cutting costs by pegging the rates of defendant solicitors, claimant solicitors are entering into very lucrative funding arrangements and are earning two or three times the rates we are.'The implications of that are that we could see a drift of expertise from the defendant side into more profitable areas, which will not be a good thing for the insurance industry.'She adds that no-win, no-fee solicitors and after- and before-the-event insurers, are being dubbed venture capitalists, since it is they who decide which claims are worth pursuing.'This is going to revolutionise litigation.

It is up to them which cases are brought and they are not going to bring many risky cases, which could result in a stagnation of legal development in negligence cases.

When it was up to the Legal Aid Board, you had to show reasonable cause but solicitors and insurers are likely to be more cautious.'However, she adds that some insurers are surprised that the number of claims coming through has slowed down.

'To maintain the sorts of figures they started off with and allow them to remain viable businesses, you could see fewer good quality claims, or even fraudulent claims going through.'The rubble from the Twin Towers is being cleaned up, but the fall-out from 11 September has still not manifested itself fully -- the insurance sector is one place to watch closely for the signs.