Workers' comp insurers ponder effects of TRIA's potential demise
With the current TRIA set to expire in December 2014, the insurance industry is gearing up for congressional battles. Those in the workers' comp space are especially interested in seeing the program continue.
"The workers' comp policy cannot exclude acts of terrorism under current existing laws," said Mona Carter, NCCI's senior division executive for national policy. "However, if the act is not renewed, carriers will lose the ability to apply for the backstop from the federal government, which the current act provides."
The Florida-based workers' comp rate-making and research organization is aggressively pursuing answers to a myriad of questions raised by the 2014 deadline. Among the most immediate relate to multiyear policies that extend beyond the TRIA sunset deadline.
"Several carriers write multiyear contracts which may be in the middle of a contract period when the act is set to expire December 2014," Carter said. "There were concerns by the industry as to how to charge, what exactly would that mean ? what happens to policies that continue? What happens if it renews?What happens if it sunsets?"
NCCI along with industry trade associations and the National Association of Insurance Commissions are weighing the various scenarios to develop appropriate strategies, as the conversation in Washington continues. The recent tragedy at the Boston Marathon may have pushed the issue even more to the forefront.
The events of 9/11 resulted in tremendous losses to reinsurers, insurers that insure insurance companies. The uninsurability of terrorism caused many to withdraw from the market for terrorism risk insurance.
TRIA was implemented in 2002 to fill the void left by the shrinking reinsurance market. The three-year program was extended in 2005 and 2007.
Legislation recently sent to the House Financial Services Committee would further extend the program through 2019.
While no companion bill to H.R. 508 has been introduced in the Senate, Sen. Mark Warner, D-Va., recently voiced support for a 10-year extension. NCCI says the prospects of action on an extension this year are "unlikely," although additional legislation will probably be introduced.
"Champions from previous fights have moved on," Carter said. "You have a lot of new members of Congress and their staff who need to be brought up to speed as to what protections this type of law provides."
Impact on insurers. Whether TRIA expires, is amended, or even continues as is, insurers will need to take action. Certain endorsements would need to be revised, for example, and language on assigned risk binders and quotes would need to reflect TRIA's current name, according to an FAQ document on NCCI's website.
While passage of a TRIA extension would be welcome news for workers' comp insurers, the industry is getting prepared for all possible outcomes. NCCI is discussing with carriers an idea used when the previous two extensions were being considered.
"We put in a contingency endorsement notification which said 'should the law expire,' carriers would notify them as to how they would be protected or covered," Carter said. "We are contemplating doing something like that so policyholders would be aware the law could expire and there could be some type of change in the future."
It is the prospect of TRIA's expiration that most concerns workers' comp insurers, and what they will do to continue the coverage. "We are in conversations with carriers trying to figure it out," Carter says. "The question would be, is there the ability for the insurance industry to secure reinsurance and how much capacity is actually available in the market."
Carter says there is currently a terrorism surcharge in place on workers' comp policies. "If allowed to continue, it would provide some relief to the marketplace, but there is no guarantee it will be able to continue," she explained. "The surcharge is about a penny per $100 in premium."
While the issue is especially significant for workers' comp, the loss of TRIA would also impact other areas of the financial marketplace. That could ultimately bode well for the chances of TRIA continuing.
"All property and casualty lines of business are impacted, however, workers' comp policies don't have the ability to exclude acts of terrorism," Carter said. "I think more people will recognize that it's not a good idea to let it go."
By Nancy Grover
Read more at the WorkersComp Forum homepage.
June 24, 2013
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