"Workers' comp is probably the most vulnerable of all lines when it comes to terrorism," said Robert P. Hartwig, president and economist at the Insurance Information Institute. "Terrorism cannot be excluded from any workers' comp policy."
Insurers looking at their total exposure will need to consider their workers' comp exposure, which could affect policies renewing in January, Hartwig explained. "So the industry will have an effort this year to avoid the 11th-hour renewals we've seen in the prior extensions. Ideally it would be extended this year, so there are no implications in the marketplace next year."
New York Reps. Michael Grimm and Carolyn Maloney formally introduced the Terrorism Risk Insurance Act of 2002 Reauthorization Act of 2013 in February, which was referred to the House Committee on Financial Services. It would extend TRIA through the end of 2019.
Initially intended as a temporary measure, TRIA was signed in November 2002, and extended in 2005 and in 2007. Proponents contend that TRIA is necessary because the frequency and location of a terrorist attack cannot be predicted and can have devastating consequences.
Following the 9/11 attacks, insurers began excluding terrorism risk from their policies, largely due to the withdrawal of terrorism risk coverage by the reinsurance market. Because workers' comp cannot exclude terrorist acts, many in the industry grew increasingly concerned about how to maintain solvency in the face of the costly risk. The affordability and availability of coverage became a concern.
TRIA acts as a type of reinsurance for terrorist events. Supporters say the elimination of TRIA would drive up costs in the workers' comp system.
"Without TRIA, it will be very difficult to obtain reinsurance in the private market," said Michael H. Lanza, executive vice president and general counsel of the Selective Insurance Group, in testimony before a congressional panel last fall. "This could lead insurers, where possible, to exit the workers' comp market. For those that remain in the market, the extent of losses could impair the ability to pay the claims of injured workers."
Meanwhile, the former head of the American International Group was quoted as saying he believes the private market is capable of doing more in terms of providing terrorism coverage than it was able to do after 9/11. During a recent press conference, Maurice R. Greenberg said he would like to see the private sector do whatever it can, although he did not endorse ending TRIA. Instead, Greenberg reportedly said he would not let the program expire without talking to the industry as a whole.
The former CEO of AIG is chairman and CEO of C.V. Starr & Co., which he noted underwrites terrorism coverage.
Read more at the WorkersComp
March 11, 2013
Copyright 2013© LRP Publications