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If lawmakers need any more reasons to renew the federal terrorism insurance backstop, they should take a look at the workers compensation marketplace. While the inability of property owners to buy coverage in high-risk areas is the most frequently cited reason given for renewing the most recent version of the Terrorism Risk Insurance Act, failure to reauthorize the program would likely have its most far-reaching effect in the workers comp arena.
That's because workers comp is compulsory in most states and terrorism risk cannot be excluded from the coverage. Unlike property insurance, where policyholders might opt to forgo terrorism coverage if they think they are not at risk or if they can't afford the premium, nearly all employers have little option other than to buy workers comp terrorism coverage whether they can afford it or not.
Employers already are feeling the consequences of uncertainty over the renewal of TRIA, as insurers often are inserting clauses into policies that would allow them to increase workers comp premiums if the backstop is not renewed. In addition to the uncertainty this creates for employers' insurance budgets, it also may disrupt the insurance market as insurers cannot confidently assess how much total risk they can afford to take on.
In addition, some insurers have reacted by curtailing their workers comp exposures, reducing the choices open to employers.
The problem is compounded by the nature of workers comp risks. While property insurers will be wary of terrorism exposures for high-value properties in urban areas — midtown Manhattan, for example — significant workforce concentrations can be located in urban, suburban or even rural areas.
In short, it's a nationwide problem that requires a national solution.
And lawmakers should not shirk from providing that solution. After all, if they do not renew the federal terrorism insurance backstop, with regard to workers comp, they will effectively be compelling employers to buy insurance coverage without providing the mechanism that enables insurers to offer comprehensive coverage.
The questions surrounding workers comp further underscore the fact that businesses of all sizes need the backstop to be renewed or, even better, established as the permanent solution to a permanent problem long before its Dec. 31 expiration.