Workers Comp’ Update: What’s Going on with TRIA as X-Date Looms?
Back in April, we wrote about the potential effect non-reauthorization of the Terrorism Risk Insurance Act (TRIA) would have on businesses and workers. The legislation is set to expire at the end of this month and leaders from all industry segments, including the insurance sector, are calling for action from our government representatives.
In fact, on Thursday, December 4th, House and Senate negotiators all but reached agreement on Thursday to extend federal terrorism insurance for six years. The deal would maintain the federal insurance backstop passed by Congress after the attacks of Sept. 11, 2001, but the threshold for federal assistance would begin after destruction costs reach $200 million, double the current threshold of $100 million. The deal, according to the New York Times, was sweetened for those opposed to extending TRIA. Negotiators added a measure to mitigate the impact of the 2010 Dodd-Frank Act on unintended targets, giving insurance companies more flexibility on capital standards that were initially intended for banks under the financial regulatory law.
TRIA was first signed into law in 2002 in the wake of the Sept. 11, 2001 attacks, which caused $32.5 billion in insured losses. After those attacks, the terrorism-insurance market dried up, with coverage becoming unaffordable or unavailable to property owners and developers, causing delays for construction and real estate deals.
Today as the United States faces threats from ISIS and elsewhere, a TRIA lapse could lead to pricier coverage for terrorism risks and less availability of such insurance. It can also once again delay construction and development projects as it did after 9/11, according to analysts. In fact, industry experts have said that without some kind of system in place to safeguard against terrorism risks it will be difficult for the developers of commercial construction projects and other large scale endeavors to obtain from lenders the financing they need. This would have a direct, potentially devastating impact on a crucial sector of the U.S. economy that is only now beginning to recover from the long recession.
Additionally, as we discussed back in April, a lapse could also affect the Workers’ Comp market as insurers may look to contract from providing this coverage, particularly in risky areas. As we wrote, unlike other coverage lines, there are no policy limits and exclusions for terrorism in Workers Compensation. Without TRIA in place, employers perceived to be at high risk for terrorism might have to obtain coverage in residual markets, which could charge higher premiums. Expiration of TRIA and growth in the residual market, according to report released by the Rand Corporation earlier this year, might also mean that Workers’ Comp losses from a catastrophic terror attack would largely be financed by businesses and taxpayers throughout the state in which the attack occurs, adding to the challenge of rebuilding in that state. TRIA, in contrast, spreads such risk across the country.
Caitlin Morgan provides a broad range of Workers’ Compensation solutions, including large deductible programs, self-insured programs, and captives, and will keep you updated on this important issue. Also, if you would like to discuss our Workers’ Comp solutions, please give us a call at 877.226.1027.