More Support for TRIA Extension
A pair of new reports is adding to the momentum urging Congress to extend the federal government’s terrorism backstop program. The Democratic Governors’ Association and a report by RAND both talk of chilling ramifications should the Terrorism Risk Insurance Act be allowed to expire at the end of the year.
While insurance industry representatives have been speaking to members of Congress lately, they are now being joined by other facets of the economy. Insurers, especially those in workers’ comp, are hoping Congress will act soon and extend the program.
“Workers compensation is a unique line of insurance,” said the DGA’s report, Why Reauthorizing the Terrorism Risk Insurance Act is Important for States. “If TRIA expires, it would expose state workers’ compensation insurance markets to unlimited terrorism-related claims if a terrorist event occurs, which could result in unprecedented losses and destabilize the markets.”
The report went on to quote NCCI as saying the absence of TRIA would result in increased costs and severely constrained coverage, and create difficulties for employers in meeting state regulatory requirements, possibly leading to layoffs of workers.
“By having a plan in place that covers and adjusts claims arising from a terrorist attack, the federal government creates a level of certainty that better serves taxpayers and policyholders impacted by terrorism,” the report concluded. “The private market isn’t capable of providing terrorism coverage without a federal backstop at a level that businesses need, and lack of coverage availability could result in dire consequences for the economy at a time when it’s just starting to bounce back.”
Potential national security implications are the focus of the RAND study. National Security Perspectives on Terrorism Risk Insurance in the United States was funded by insurance and business organizations.
“Examining the history of terrorism in the United States since the passage of TRIA and reviewing counterterrorism studies, the authors find that terrorism remains a real national security threat, but one that is very difficult for insurers to model the risk of,” said a statement accompanying the report. “They also find that terrorism risk insurance can contribute to making communities more resilient to terrorism events, so, to the extent that terrorism insurance is more available with TRIA than without it, renewing the legislation would contribute to improved national security.”
Reform Impacts ASC Costs
California’s efforts to reduce costs in its workers’ comp program have apparently been successful in at least one area. Average facility fee payments to ambulatory surgery centers (ASCs) have declined 26 percent per episode and 28 per procedure — more than researchers had projected.
S.B. 863 included provisions to reduce the maximum facility fees for services performed in ASCs from a maximum of 120 percent of the Medicare fee to 80 percent. Analysts had predicted the change would reduce ASC payments by 25 percent.
“Thus far, the change in the ASC fee schedule has achieved its intended objective of reducing one aspect of workers’ compensation medical costs,” according to a new study. “Moreover, the study found no evidence of changes which would potentially undermine the fee schedule savings.”
The study included two independent sets of data from the California Workers’ Compensation Institute and the California Workers’ Compensation Insurance Rating Bureau. The authors measured average amounts billed and paid for workers’ comp outpatient surgery services rendered in the year before adoption of the revised fee schedule and the first six months after.
The researchers looked for:
- Fees billed
- Fee schedule adjustments
- Network discounts
- Payment per episode
- Mix of services
- Service intensity
- Sites of service
The savings came despite an increase in the average amount billed per ASC procedure — $3,183 to $3,386, a 6.4 percent increase. However, when the conversion factor multiplier from 1.20 to 0.80 was applied, the average ASC fee schedule allowed declined by nearly 31 percent from $977 to $674. The result was a wider spread between the billed and scheduled amounts for ASC services from $2,206 in 2012 to $2,711 in 2013.
The authors also looked at per episode costs. Episodes of care were defined as all procedures and ancillary services on a specific claim, specific bill, and a specific date of service. For example, an arthroscopy episode could include data for both the arthroscopic procedure as well as a debridement procedure, or removal of tissue from the surgical area, that was performed on the same date and included in the same bill.
“The average amount paid for ASC services per episode declined 26 percent from $3,291 to $2,443 following the adoption of the fee schedule changes in January 2013,” the report said.
The mix of services changed little after the fee schedule change. The researchers found only minor shifts in the distributions of outpatient procedures, indicating the fee schedule changes had little effect on the types of ASC procedures performed.
What Is Insurance Innovation?
Truly innovative insurance solutions are delivered in real time, as the needs of businesses change and the nature of risk evolves.
Lexington Insurance exemplifies this approach to innovation. Creative products driven by speed to market are at the core of the insurer’s culture, reputation and strategic direction, according to Matthew Power, executive vice president and head of strategic development at Lexington, an AIG Company and the leading U.S.-based surplus lines insurer.
“The excess and surplus lines sector is in a growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said. “Tomorrow’s winning companies are those being built upon true breakthrough innovation, with a strong focus on agility and speed to market.”
To boost its innovation potential, for example, Lexington has launched a new crowdsourcing strategy. The company’s “Innovation Boot Camps” bring people together from the U.S., Canada, Bermuda and London in a series of engagements focused on identifying potential waves of change and market needs on the coverage horizon.
“Employees work in teams to determine how insurance can play a vital role in increasing the success odds of new markets and customers,” Power said. “That means anticipating needs and quickly delivering programs to meet them.”
An example: Working in tandem with the AIG Science team – another collaboration focused on innovation – Lexington is looking to offer an advanced high-tech seating system in the truck cabs of some of its long-haul trucking customers. The goal is to reduce driver injury and fatigue-based accidents.
“Our professionals serving the healthcare market average more than twenty years of industry experience. That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment. At Lexington, our relentless focus on innovation enables us to take on the risk so our clients can take on the opportunities.”
– Matthew Power, Executive Vice President and Head of Regional Development, Lexington Insurance Company
Power explained that exciting growth areas such as robotics, nanotechnology and driverless cars, among others, require highly customized commercial insurance solutions that often can be delivered only by excess and surplus lines underwriters.
“Being non-admitted, our freedom of rate and form allows us to be nimble, and that’s very important to our clients,” he said. “We have an established track record of reacting quickly to trends and market needs.”
Lexington is a leading provider of personal lines coverage for the excess and surplus lines industry and, as Power explains, the company’s suite of product offerings has continued to evolve in the wake of changing customer needs. “Our personal lines team has developed a robust product offering that considers issues like sustainable building, energy efficiency, and cyber liability.”
Most recently the company launched Evacuation Response, a specialty coverage designed to reimburse Lexington personal lines customers for costs associated with government mandated evacuations. “These evacuation scenarios have becoming increasingly commonplace in the wake of recent extreme weather events, and this coverage protects insured families against the associated costs of transportation and temporary housing.
The company also has followed the emerging cap and trade legislation in California, which has created an active carbon trading market throughout the state. “Our new Carbon ODS product provides real property protection for sequestered ozone depleting substances, while our CarbonCover Design Confirm product insures those engineering firms actively verifying and valuing active trades.” Lexington has also begun to insure new Carbon Registries as they are established in markets across the country.
Lexington has also developed a number of new product offerings within the Healthcare space. The Affordable Care Act has brought an increased focus on the continuum of care and clinical patient safety. In response, Lexington has created special programs for a wide range of entities, as the fast-changing healthcare industry includes a range of specialized services, including home healthcare, imaging centers (X-ray, MRI, PET–CT scans), EMT/ambulances, medical laboratories, outpatient primary care/urgent care centers, ambulatory surgery centers and Medical rehabilitation facilities.
“The excess and surplus lines sector is in growth mode due, in no small part, to the speed at which our insureds’ underlying business models are changing,” Power said.
Apart from its coverage flexibility, Lexington offers this segment monthly webcasts, bi-monthly conference calls and newsletters on key risk issues and educational topics. It also provides on-site risk consultation (for qualifying accounts), access to RiskTool, Lexington’s web-based healthcare risk management and patient safety resource, and a technical staff consisting of more than 60 members dedicated solely to healthcare-related claims.
“Our professionals serving the healthcare market average more than twenty years of industry experience,” Power said. “That includes attorneys and clinicians combining in a defense-oriented claims approach and collaborating with insureds in this fast-moving market segment.”
Power concluded, “At Lexington, our relentless focus on innovation enables us to take on the risk so our clients can take on the opportunities.”