Customers could find it impossible to place their risks with the most secure insurers as the effects of the September 11 terrorist attacks slash capacity and drive up rates, according to the European chief executive of broking giant Marsh.

Daniel L Jones says some clients may not be able to afford a flight to quality.

"There is a significant flight to quality, but it is qualified by one thing. There is a shortage of capacity in the market, so people might not have the luxury right now," he says.

"They might not have a lot of choice and the flight to quality might be extremely expensive."

He says the huge claims generated by the destruction of the World Trade Centre are cutting capacity across the market. "We need every dollar, every pound and every franc of capacity that's out there. Our clients are more concerned than ever about the insurance company being good for the money - that it is strong and solvent."

He believes the shortage of capacity will drive up rates for at least a year. "Anyone who doesn't have a challenging renewal in the next calendar year is a fortunate person," he says.

"We've seen a downward decline in capacity become a sharp drop in capacity, post-World Trade Centre."

But he says the problem could be solved in time-honoured fashion by the injection of new capital chasing higher rates. He adds it would be a mistake to think previous cycles of capacity shortages, rising rates, increased competition and falling rates had disappeared.

"For the past 14 or 15 years, people have been saying the cycle is dead, because every year premiums were steadily going down. Now the cycle is back with a vengeance. The hard market is back.

"This is an event over and above what anybody has modelled and it cuts across all sorts of lines of insurance. It's every kind of loss. It is fundamentally different in the type of event it was, but its effect on making the market very hard is not fundamentally different - it just seems that way."

But as well as being able to charge higher rates, insurers will face clients demanding higher standards.

"People are getting more concerned not just about the cheapest policy, but they are concerned about its willingness and response - that's going to be more important."

Jones says that, amid fears of insurers going bankrupt as a result of losses from the events of September 11, Marsh will avoid firms its clients are concerned about. A company in the US might see Lloyd's as being "shaky", he says, in which case its views would be respected.