Published on May 15, 2014

Workers’ comp costs could rise without TRIA renewal

By Sheena Harrison, Crain News Service

WASHINGTON (May 15, 2014) — Failure by Congress to renew or replace the federal terrorism insurance backstop could push employers into the residual workers’ compensation market and require them to pay higher comp premiums.

That potentially could cause a slight reduction in overall economic growth, according to a study released May 7 by RAND Corp.

The backstop, established by the Terrorism Risk Insurance Act (TRIA) of 2002, was renewed in 2005 and in 2007 under the Terrorism Risk Insurance Program Reauthorization Act. The latest version is due to expire Dec. 31.

If TRIA isn’t extended, workers’ comp insurers could respond by declining comp coverage to employers that have a high concentration of employees in one geographic area, the Santa Monica, Calif.-based nonprofit research organization said.

Such employers would represent a high amount of potential losses from workers’ comp claims due to nuclear, biological, chemical, or radiological attacks, which can’t be excluded from workers’ comp policy terms

“Insurers facing limited risk-management options in (workers’ comp) might be forced to decline (workers’ comp) coverage for all risks to avoid catastrophe exposure, whereas insurers could limit terrorism risk in property insurance and other TRIA lines while continuing to sell the underlying policy,” the study said.

Employers that couldn’t renew or buy traditional workers’ comp policies in a post-TRIA environment likely would need to buy coverage from workers’ comp residual markets, where they could pay higher premiums, RAND said.

“The higher cost of coverage would tend to reduce labor incomes and economic growth even if there is never another attack, though these effects are likely to be small,” RAND said in the report.

Without TRIA or a comparable program, workers’ comp losses from a catastrophic terror attack would “largely be financed by businesses and taxpayers throughout the state in which the attack occurs, adding to the challenge of rebuilding in that state,” RAND said.

This report appeared on the website of Crain’s Business Insurance magazine, a Chicago-based sister publication of Tire Business.

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