WC Thought Leaders Ponder TRIA Expiration
What was surely a surprise to even the strongest skeptics occurred when the 113th Congress left Washington, D.C. without reauthorizing a terrorism insurance backstop program.
Senate Bill 2244 would have extended the Terrorism Risk Insurance Act for six years, increased incrementally the program trigger from $100 million to $200 million, increased incrementally the insurer copay from 15 percent to 20 percent, and increased incrementally the mandatory recoupment of government expenditures under the program from $27.5 million to $37.5 million.
The measure had bipartisan support. However, it also included provisions related to the National Association of Registered Agents and Brokers that drew the opposition of retiring Sen. Tom Coburn, R-Ok, who put a hold on the bill. Ultimately, Congress was unable to work through the objections and instead adjourned.
For the first time since the Terrorism Risk Insurance Act was enacted following the terrorist attacks on 9-11, there was no program in place as of Jan.1.
What that means for the insurance industry is a matter of opinion, as social and other media have been buzzing with a variety of opinions. For workers’ comp the story is especially acute, since coverage in the line cannot exclude terrorist acts, including those involving nuclear, biological, chemical and radiological agents.
“The impacts for workers’ comp programs will be felt as policies expire and then insurers are forced to make individual decisions as to whether to renew policies,” said Robert Hartwig, president of the Insurance Information Institute. “It is different from the property insurance context, where insurers can decide to renew a policy but exclude terrorism. That option doesn’t exist for workers’ comp.”
Hartwig believes the availability of worker’s comp coverage will become the major obstacle facing employers seeking coverage, especially in areas where there are large concentrations of workers. Without the option to exclude terrorism coverage in workers’ comp, insurers will look at their total risks.
“The only alternative for an insurer is to effectively non-renew a policy in order to limit its aggregate exposure in a given area,” he said. “That exposure they will measure across workers’ comp and property [insurance] … so its decision to underwrite workers’ comp is not independent of its decision to underwrite the property policy.”
If No Quick Decision
Leaders of both congressional chambers have expressed commitments to making TRIA a top priority for the new Congress. But there are, of course, no guarantees.
“The new Congress is more conservative than this one,” wrote Joseph Paduda, “and the strong anti-government involvement lobby in the current Congress had already significantly diluted TRIA before one of their members killed renewal hopes with a ‘hold’ on the bill.”
Writing on his ManagedCareMatters blog in December, Paduda, the principal of Health Strategy Associates, said that even though many members of the new Congress want to keep government out of private industry, a non-renewal of TRIA could end up costing taxpayers.
The lack of TRIA will likely be felt first in so-called tier one cities — New York, Washington, Chicago, San Francisco — where there are large concentrations of workers — and value — and are deemed to be at greatest risk. But the longer times goes on without the backstop, the more limited availability may become.
“The problem is more insidious if Congress does not renew the act early in 2015,” Hartwig said. “Pressures will build thru 2015 and are likely to be felt in a shortage of coverage in tier one, also where [there are] concentrations of infrastructures with groups of many people,” such as shipping ports and airports, “even if they are not in a major urban area … It is going to be a national problem. The likely scenario is that policies are not renewed, or [are renewed] at higher prices, or end up in state residual market plans.”
Some practitioners have indicated the lack of a TRIA –type program may not have a major impact on availability and/or prices. Others counter that attitude.
“There is some sentiment that the absence of TRIA is no big deal, but they do not understand that shifting risks to residual markets is not a panacea,” said Bruce Wood, vice president and associate general counsel for the American Insurance Association. “Indeed, shifting risks to residual markets that are assigned risk plans retains this risk within the same insurance industry that has not been able to procure the reinsurance required to continue writing that risk in voluntary markets. If a residual market is a state fund, depending on the state fund, that is shifting risk to a state’s taxpayers or to the same industry, if the state fund is a member of the state’s guaranty fund.”
Wood and others also point to a study produced earlier this year by the RAND Corporation that looked at possible impacts on workers’ comp in the absence of TRIA.
“Migration of terrorism risk to residual markets following TRIA expiration would give residual markets and other state institutions a larger role in the allocation of catastrophic losses covered by workers’ comp in a future large terror attack,” the report said. “Whereas TRIA serves to spread catastrophe risk broadly over the entire U.S. commercial property and casualty insurance industry and its policyholders, TRIA expiration could lead to a large share of catastrophic losses being borne within the state in which the attack occurs. Within most states in which an attack occurs, losses would be shared broadly by all P&C policyholders (i.e., businesses) in the state; in a minority of states, losses would instead be borne by state budgets, and thus by taxpayers and state residents at large.”
Proponents of TRIA are hoping the 114th Congress will move swiftly to address TRIA and make it retroactive to Jan. 1.