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TRIA Will be Renewed, P-C Panel Agrees

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Photo by Don Pollard

NEW YORK—Insurance industry experts in a panel discussion agreed that while terrorism risks are changing, they believe the Terrorism Risk Insurance Act (TRIA), set to expire Dec. 31, 2014, will be reauthorized by Congress. In fact, a poll taken at the annual Property/Casualty Insurance Joint Industry Forum found that 93% of attendees believe TRIA will be renewed.

“In the U.S., we’re moving away from the risk of catastrophic-scale terrorism. But we are probably more likely to have the Boston Marathon type of terrorism,” said Stephen Flynn, professor of political science and founding director of the Center for Resilience Studies at Northeastern University in Boston.

The reasons are that, “The know-how to carry out these low-end acts is pervasive and the opportunities for this type of terrorism are relatively high. Because they can be conducted on a small scale, they are difficult to plan for in advance and intercept,” he explained, adding, “In my mind there is no question that the feds need to play a backstop role. This isn’t a natural market. It’s not a natural disaster environment. The role an industry can play in educating about risk and engaging mitigation measures is a very useful public policy outcome of the feds playing a role as a backstop.”

The six-member panel was moderated by Julie Rochman, president and CEO of the Insurance Institute for Business & Home Safety.

Robert H. Easton,executive deputy superintendent of the insurance division at the New York Department of Financial Services [pictured above with John Huff, director of the Missouri Department of Insurance] said, “We would like to see TRIA in some form become permanent so we don’t have to have this discussion every few years.”

Easton added, “The political reality is that this is unlikely to occur, but our view is that if anybody should be taking one of the more extreme views it is New York. The program has been critical to insuring that there is sufficient capacity in the marketplace.”

Huff agreed that it needs to be renewed, but noted that TRIA should not be a “big state, small state issue.” Rather it should be supported by states of all sizes. “Missouri has a significant urban, suburban and rural presence,” he said.

Jay Gelb, managing director and senior equity analyst for Barclays believes TRIA will be reauthorized at the last minute. If reauthorization doesn’t happen, “It would be concerning from an investment viewpoint,” however, “Insurers could underwrite the exposure or limit their concentrations in target areas, especially in lines where losses cannot be excluded, such as workers compensation.”

Matthew Mosher, senior vice president and chief rating officer for the A.M. Best Company observed that while insurers can, indeed, manage the risk of terrorism, and even avoid it, “what does that do for the nation as a whole? When you look at the impact of TRIA, it comes down to how much risk you want individuals to absorb. At this point insurers are not able to provide a large amount of coverage without a backstop.”

In terms of adjustments to the program, Easton said, “We would like to see the inclusion of cyber as a risk that TRIA addresses. The cyber world is very different today than even 12 or 13 years ago.”

For the poll questions and full survey results, go to 2014 Property/Casualty Insurance Joint Industry Forum Questionnaire.

TRIA’s Impact on Workers Comp

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Because of the significant financial impact of the Sept. 11, 2001 terrorist attacks, Congress created the Federal Terrorism Risk Insurance Act (TRIA). Its purpose is to provide a financial backstop to the insurance industry that would cap losses in the event of another large-scale terrorist event. TRIA was initially set to expire at the end of 2005, but it has been extended twice and is now set to expire Dec. 31, 2014.

When most people think of TRIA, they think of property insurance. Without TRIA, many high-profile properties would be difficult to insure in the commercial marketplace. However, TRIA also plays an important role in workers’ compensation coverage, and its pending expiration is already impacting some renewals.

Workers’ compensation insurers are particularly concerned about large accumulations of employees in small areas, also known as employee concentrations.

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When carriers model employee accumulations, they not only look at a single employer’s concentrations, but also their aggregate accumulation exposure for all their policyholders in a particular zip code or city and in some cases across multiple correlated lines of business. Because workers’ compensation underwriters are required to provide terrorism coverage by law, the only way to limit their exposure is to reduce the amount of capacity they offer.

If TRIA is allowed to expire or is modified significantly, employers in certain cities and industries with large employee concentrations will likely experience capacity shortages.

In fact, the uncertainty around TRIA’s reauthorization is already leading some workers’ compensation carriers to decline or non-renew risks in certain geographical areas, or ask for large rate increases.

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The healthcare, public entity, higher education, and financial sectors are particularly affected by employee concentration issues at the moment.

To mitigate the impact of TRIA’s uncertainty, employers should differentiate their risk. Since both insurers and reinsurers use catastrophic models to estimate their loss potentials, it is critical that employers provide the highest quality of exposure data to help distinguish their risk profiles from their peers.

Additionally, companies with multiple shifts or those that operate in a campus setting should make sure to report both the total number of employees and the number of employees working during peak shifts—as well as the actual buildings where the employees are located. The number of employees working during peak shifts is the actual exposure to a terrorist event, not the total number of employees.

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Also, companies with a large percentage of their workforce in the field or telecommuting, rather than in the office where their payroll is assigned, should give this information to insurers. Providing very detailed information can help overcome some potential pitfalls of the catastrophic models and better reflect an employer’s exposure to catastrophic losses.

Employers with a large concentration of workers, especially those in major metropolitan areas, should be prepared to provide the following information to underwriters:

  • Employee marital or dependency status, including dates of birth for dependents.
  • Employee telecommuting/hospitality practices and impact on concentration.
  • Physical security of the building, including information about guards, surveillance cameras, parking areas, and HVAC protections.
  • How access to the building is controlled.
  • Construction of the building and location of the offices.
  • Management policies around workplace violence, weapons, and employment screening.
  • Employee security procedures.
  • Emergency response/crisis management plans and procedures.
  • Fire/life safety program.
  • A list of security staff.

As we move into 2014 without Congressional action on TRIA, the reaction of the marketplace is expected to become more pronounced. It is imperative that employers prepare to address the concentration issues with their carriers. This will help lessen the impact of these concerns and position employers to receive optimal terms on their risk management programs.

PCI Poll Finds Public Support for TRIA

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Nearly 68% of likely voters favor extending the Terrorism Risk Insurance Act (TRIA) beyond December 31, 2014 according to a poll released by the Property Casualty Insurance Association of America (PCI).

The poll asked likely voters various questions relating to TRIA and the economic implications of a terrorist attack. In addition to showing public support for an extension of the TRIA program, the poll clearly shows a belief that the federal government should have some responsibility for the economic losses associated with a terrorist attack. Over 72% of those polled believe that a combination of the federal government and private insurance companies should be responsible for the costs from injuries to workers and property damage in the case of a terrorist attack. Over 90% believe that protecting against losses from terrorist attacks against the United States should be at least in part a federal responsibility.

Many in the insurance industry, including RIMS, have been arguing in favor of a long term extension of TRIA, but this poll presents the first real evidence that there is a support among the general public as well. “We saw remarkable agreement among voters that the responsibility for the costs from injuries to workers and property damages from a terrorist attack should be shared amongst the federal government and private insurance companies. We also saw a true sense of patriotism, there was no division amongst rural and urban areas. Citizens understand the national economic implications of a terrorist attack and the importance of having a plan in place,” said Marguerite Tortorello, PCI’s senior vice president public affairs.

While the results do seem to bolster the arguments made by TRIA advocates, it does show little public awareness of the program. When asked whether it was true that TRIA was created after 9/11 only 32.7% of those surveyed responded that it was true while 26.7% responded false and 40.5% did not respond. This isn’t too surprising as the public tends to lack awareness of government program specifics. On the positive side, once informed that TRIA was in fact created, 73.2% stated that they supported the decision to create the TRIA program.

TRIA: Not Just a Big City Issue

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The following is an excerpt from the RIMS executive report “Terrorism Risk Insurance Act: The Commercial Consumer’s Perspective.” The report is available for download here.

Opponents and skeptics of TRIA express concern that the program is tailored to benefit only major metropolitan cities such as New York City, Chicago, San Francisco, etc.; however, major cities are not the only ar­eas facing the very real threat of terrorism, as the 1995 Oklahoma City bombing made evident. Additionally, while the recent attacks in Boston occurred in a major city, they did not occur in a major financial center or area that would be seen as exclusive to such a city. They occurred during a marathon race and city celebration; similar events take place throughout the country on almost a daily basis.

On January 31, 2012, the National Consortium for the Study of Ter­rorism and Responses to Terrorism (START) released its “Hot Spots of Terrorism and Other Crimes in the United States, 1970 to 2008” report to the Department of Homeland Security. This report found that more than 2,600 terrorist events, defined as “the threatened or actual use of il­legal force and violence by a non-state actor to attain political, economic, religious, or social goal through fear, coercion, or intimidation,” occurred in the United States during those years.

On April 29, 2010, the Heritage Foundation published a list of thirty known terrorist plots that had been foiled in the United States following 9/11. These plot targets included a shopping mall in Columbus, Ohio; gas pipelines in Wyoming; and a federal building in Springfield, Illinois. This again shows that major cities are not the only targets of terrorists.

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On September 8, 2011, The Daily Beast published 10 additional foiled plots that had occurred after April, 2010, one of which was a plot to target Christmas tree lighting in Portland, Oregon.19

These lists and studies are highlighted because they show that major cit­ies are not the only terrorist targets in the United States. Any venue that brings together a large group of people is a potential target for terrorism whether it be a sports venue, a hospital, a school or university, a large commercial building, a utility, place of worship or Christmas tree light­ing.

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Businesses and organizations, whether in New York or Columbus, Ohio, need adequate terrorism coverage and the market stability TRIA provides to manage that risk.