The Pfundstein Report
Fast forward to the fourth quarter 2005. Looking back on what I hope was a successful year economically you will have planned for ’06 and beyond. What new products and markets will be your focus? Certainly, you will be concerned about the escalating cost of providing health insurance for the organization’s employees. Add to that concern workers’ compensation insurance, which may not even be available or prohibitively expensive. Here’s why: In response to the economic disruption caused by the September 11th terrorist attacks, Congress created a “temporary” federal program of backstop insurance for certain terrorism risks. This new law is known as “TRIA,” for Terrorism Risk Insurance Act 2002. TRIA was designed to reduce insurance market disruptions (when insurers can’t find coverage); make terrorism coverage available to commercial insureds through the “make available” aspect of the law; and allow the insurance industry sufficient time to build adequate capital and surplus to ensure terrorism risks. The problem is that TRIA sunsets at the end of 2005. Congress needs to extend it now — at least for several more years. My October 2004 column explains how TRIA works and why you should care. While TRIA has been in force, reinsurers (companies that insure insurance companies) made coverage available to property and casualty companies, including workers’ compensation writers on terms which were reasonable. Without TRIA, reinsurance coverage covering terrorism risk will be prohibitively expensive, if not unavailable. Reasonably priced reinsurance is necessary if companies are required to provide workers’ compensation coverage. All 50 states require worker’s compensation insurance coverage to provide benefits for work related injuries without regard to whether they resulted from a terrorist act. What this means is that a workers’ compensation insurance policy (unlike other forms of property and causality insurance) cannot exclude coverage for injuries caused by a terrorist attack. Although this public policy makes sense, financing the risk associated with it may not be possible at rates employers can reasonably afford. Workers’ compensation coverage is particularly sensitive (as is group life insurance) to concentration of risk exposures. We learned from the horrific attack on the World Trade Center that concentration of employees can impair the capital of the workers’ compensation insurance industry. The reality is that regional writers will not offer coverage or will be forced to price it in a way that will make it essentially unavailable. Last October, I urged you to let our congressional delegation know our economy needs to re-extend TRIA. I respectfully ask for your help again.