As TRIA expiration lingers, work comp carriers show their own “go forward” strategy
Amid growing concern over TRIA/TRIPRA’s expiration on 12/31/14 and the government’s long-term commitment to a Federal Backstop program, many Worker’s Compensation carriers have are thinking ahead when it comes to renewals and securing new business.
When Congress extended TRIA in 2007, it also revised the definition of “acts of terrorism” to include domestic terrorism. Domestic Terrorism has three components:
- All acts of terrorism outside the scope of the Act or the Foreign Terrorism Premium with an aggregate workers compensation losses in excess of $50 million.
- Earthquake: The shaking and vibration at the surface of the earth resulting from underground movement along a fault plane or from volcanic activity where aggregate workers compensation losses from the single event are in excess of $50 million.
- Catastrophic Industrial Accident: Any single event resulting in aggregate workers compensation losses in excess of $50 million.
Effective September 1, 2008, the premium for domestic terrorism and other catastrophes was no longer part of the manual rate, but listed as a stand-alone charge similar to the Terrorism Risk Insurance Act (TRIA) charge for foreign terrorism. Today, most carriers show the TRIA and Domestic Terrorism as one charge labeled ‘Terrorism’.
As the expiration of the federal backstop approaches, insurers that fail the A.M. Best Stress Test will be required to present an action plan to A M Best, detailing the steps the insurer will take to reduce its exposure to terrorism risk in the event that a recovery from the federal backstop is not available. Issuing endorsements that exclude terrorism when or if the federal backstop expires may be one course of action, but according to AM Best, insurers providing Worker’s Compensation coverage will need to have a more detailed action plan.
For some insurance companies, that means taking a closer look at employee concentrations in Tier I & tier II cities (See Tier City list below), and at the number of large exposure concentrations (the insurer’s natural catastrophe probable maximum loss, or PML.) i.e. earthquake as an example.
Tiers are ranked according to probability of attack:
- Tier 1: 6%
- Tier 2: 3%
- Tier 3: 1%
U.S. Locations by Terrorism Risk Tier
Tier 1 (6%):
New York, NY
Los Angeles, CA
San Francisco, CA
Tier 2 (3%):
Las Vegas, NV
Minneapolis/St Paul, MN
San Diego, CA
San Jose, CA
St Louis, MO
Tampa/St Petersburg, FL
Tier 3 (All other):
All locations not listed in Tier 1 or Tier 2
To learn more, we encourage you to contact your WGA Client Executive.
About the Author
David Bardelli is a Senior Vice President in the Property & Casualty Group and the Casualty Practice Leader for WGA. David has extensive knowledge with casualty risks, including technology healthcare, business services and miscellaneous manufacturing groups of all sizes.