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The Potential Impact on Workers Compensation Insurance without TRIPRA

Posted on: April 8, 2014 by Caitlin Morgan

The Potential Impact on Workers Compensation Insurance without TRIPRA

The Potential Impact on Workers Compensation Insurance without TRIPRA

The Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is set to expire December 31, 2014 and government reauthorization of the program is still unclear, leaving many in the insurance industry concerned over the potential fallout that will come without TRIPRA. The concerns are widespread across many industry sectors and coverage lines, including property, business interruption, aviation, liability and workers compensation where terrorism insurance is mandated whether or not the TRIPRA backstop is available.

A Brief Overview on TRIPRA

Prior to the 9/11 attacks, terrorism insurance was, for the most part, not excluded in commercial insurance policies. But in the aftermath of 9/11, insurers and reinsurers began contracting and excluding terrorism coverage, making it difficult for commercial property owners to obtain adequate insurance at affordable pricing. Insured property losses from 9/11 totaled about $32.5 billion ($42.9 billion in 2013 dollars), according to a recent white paper on “Terrorism Risk: A Constant Threat” by the Insurance Information Institute (I.I.I.).

In response to insurers and reinsurers excluding terrorism from their policies, Congress in 2002 enacted the Terrorism Risk Insurance Act (TRIA), establishing a public-private risk-sharing partnership that allowed the federal government and the insurance industry to share losses in the event of a major terrorist attack. Since then, TRIA has been revised and extended twice, with the most recent extension in 2007 under TRIPRA. The overwhelming share of the risk is borne by private insurers under TRIPRA – in fact, up to $100 billion.

TRIPRA by all measures has been successful in restoring the ability to make insurance products available with little or no cost to taxpayers. But as TRIPRA’s expiration deadline approaches and commercial policies come up for renewal, there are sound reasons for concern, particularly in central business districts where the need for coverage is paramount. Moreover, terrorism continues to be a real threat and can come in many forms, including from homegrown terrorists, cyber warfare, maritime threats, and transit system threats. Without the reauthorization of TRIPRA, we can expect to see a reduction in coverage availability and significant price increases. In the I.I.I. paper, according to statistics cited in an Aon report, some 70%-80% of the commercial property “would revert to absolute exclusions for terrorism if TRIA is changed”.

The Effect on Workers Compensation

Regarding workers compensation, which is the only coverage that mandates terrorism coverage be included, without TRIPRA the consequences would be far-reaching. Right now workers comp automatically covers an employee injured or killed on the job as a result of a terrorist act. Without TRIPRA, insurance carriers will begin to contract from offering comp coverage altogether, particularly in areas with a high concentration of workers, such as in Los Angeles, Chicago, New York, and other large cities. In fact, in a briefing released by Marsh in early January, it was reported that many organizations located in metropolitan areas are experiencing significant pressure on their workers compensation programs as uncertainty mounts over TRIPRA. Price increases and the possibility of non-renewal are some of the issues coming up.

“Arguably, workers compensation is the most important line that is backed by TRIA because it protects every single worker in America,” Dr. Robert Hartwig said. “So the take-up rate is effectively 100% for terrorism coverage in the workers compensation context, which is much higher than we would see in any other TRIA-backed line. This means workers comp is, in many respects, the most vulnerable to a potential non-reauthorization of TRIA.”

Caitlin Morgan provides a host of workers compensation solutions, including large deductible programs, self-insured programs, and captives. We can review your insureds’ programs and discuss alternatives in preparation for possible TRIPRA non-reauthorization. Please give us a call at 877.226.1027.

Sources: I.I.I., Business Insurance

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Posted in: Workers Compensation