The
September 11, 2001 terrorist attacks on the World Trade Center and the Pentagon
may make workers’ compensation insurance more expensive. For the first time,
businesses with large concentrations of employees may find that their workers’
compensation insurers will consider those big groups of employees as additional
risk factors in case of future terrorist attacks.
This
is the opinion of Christopher Oster and Michael Schroeder as set out in their
January 9, 2002 Wall Street Journal article entitled “Workers’ Comp
Insurance Now Harder to Get.” One of the Oster and Schroeder’s primary
sources was a January 9 RatingsDirect article from Standard &
Poor’s Insurance Ratings group entitled “Commercial Insurers to Cut Coverage
for Losses Caused by Terror Attacks.”
“One
lesson insurers learned from the Sept. 11 terrorist strikes—which are
estimated to be costing the industry at least $40 billion—is that they have
concentrations of risk that they hadn’t previously factored into their
underwriting decisions,” write Oster and Schroeder. “Practically any type of
workers clustered in a big group look increasingly like risky bets to insurance
companies.”
Don
Watson of Standard & Poor’s notes, “Though they haven’t yet, Congress
may pass legislation that would help to cap losses to the [insurance] industry
caused by terrorism. But many insurers will not want to provide significant
coverage for terror losses regardless of government action.
“By
their nature,” Watson adds, “terror losses are difficult to price, and the
potential concentration within an insurer’s portfolio are such that it would
be imprudent for insurers to write coverage without effective reinsurance. And
right now, most reinsurers are not willing to provide large policy limits, much
less uncapped coverage for terror risk. So some are thinking it’s better just
to opt out of terrorism coverage altogether.”
Oster
and Schroeder note: “Insurance rates already are rising in most lines of
coverage, but workers’ compensation is unique in several ways. One of the most
important differences is that insurers aren’t generally allowed by state
insurance regulators to exclude coverage for war or terrorism.”
But
thanks to the ongoing worldwide war on terrorists, not just property and
aviation insurers will face increased risks. Workers’ compensation insurers
will also.
“One
of the lessons learned from Sept. 11,” reports RatingsDirect, “is
that many insurers have concentrations of risk that they had not previously
factored into their underwriting decisions. Employee groups of 1,000 or more
lives are common across Corporate America and even globally. Terror attacks on
large corporate sites could easily bankrupt insurers with workers’
compensation claims averaging $1 million or more.
“Reinsurance capacity for high excess workers’ compensation remains in short supply,” concludes RatingsDirect, “although, some of the new start-up reinsurers are looking to fill the gap, for a price that may be hard to support. Accordingly, many insurers may elect to cut workers’ compensation coverage with large accounts rather than assume terror risks implicitly.”
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