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Workers compensation insurers in California would be responsible for a $27.9 million average annual loss payable without the U.S. Terrorism Risk Insurance Program Reauthorization Act in the event of a terrorist attack, with an attack in San Francisco generating the highest loss, according to a new study.
With TRIPRA, $1.3 million of this loss lies above the program cap as it is structured in 2019, according to the Workers’ Compensation California Terrorism Risk Assessment study, developed by catastrophe modeler Risk Management Solutions Inc. for the Workers’ Compensation Insurance Rating Bureau of California, which released the study on Friday. The remaining loss of $26.6 million is shared between the government, which would retain $5.6 million, and WCIRB-member companies retaining $21 million, reducing their loss payable by 25% due to the TRIPRA program, according to the study. This equates to an average loss rate per full time equivalent employee of $1.85 and an average loss rate per $100 of payroll of $0.0039.
The model uses an attack catalog of 66,365 events across the United States, with all attack modes incorporated in the analysis, including conventional and chemical, biological, radiological and nuclear attacks.
Biological anthrax attacks are “the most likely weapon of choice due to the relatively lower cost of production and skills needed to develop it,” the study stated. “Compared to conventional attacks, anthrax attacks still cause significantly more damage in terms of the number of fatalities due to their high-severity nature. Hence, they rank high as a contributor to WCIRB average annual losses.”
A biological anthrax attack would result in a net-insured retained average annual loss of $5.5 million, according to the study.
“Biological anthrax attacks account for the highest average annual losses to the WCIRB portfolio without TRIPRA,” the study stated. “When factoring in the 2019 TRIPRA structure, however, it is the 600 lb. (conventional) bomb that results in the largest net-insured retained average annual losses, with a value of $8.9 million.”
This is because of the comparably low-severity nature of conventional attacks, which means they might not cause losses over the program deductible and could result in WCIRB-member companies or the insured retaining all or a majority of the losses of such a conventional bomb attack, according to the study.
Based on the attack catalog, the study suggests a 9.5% probability of triggering TRIPRA if a terrorism event occurs.
The WCIRB portfolio contains 11.4 million full-time equivalent employees across 543,502 distinct locations in California, with a total payroll of $544 billion.
Exposure is highest in the Los Angeles-Long Beach-Anaheim metropolitan statistical area, accounting for about 35% of the portfolio’s total full-time equivalent employees. But an attack in San Francisco generates the highest loss, with an average annual loss of $16.7 million to the WCIRB portfolio without TRIPRA and $12.2 million in net-insured loss payable with the 2019 TRIPRA, according to the study.
“This is due to the high density of exposure and potential terrorist targets in San Francisco,” the study stated.
The study uses 11 a.m. on a weekday to estimate terrorism casualties because that is the expected peak time in which the maximum number of employees are present at work based on industry averages across occupations. The risk assessment was conducted using a version of the RMS Probabilistic Terrorism Model released in the summer of 2018.
On Jan. 12, 2015, President Barack Obama signed into law the Terrorism Risk Insurance Program Reauthorization Act, which extended the Terrorism Risk Insurance Act, commonly known as TRIA, through Dec. 31, 2020. The law reduced the level of federal coverage of insured terrorism losses through 2020 by incrementally increasing the program trigger and the insurer’s co-participation percentage on a yearly basis. In 2019, the program trigger, or minimum attack size, is $180 million while the percentage of loss covered by the government is 81%, with insurers responsible for 19% of losses in excess of the deductible up to a $100 billion program cap for the entire insurance industry.
Uncertainty about whether the federal government's terrorism insurance backstop will be renewed has resulted in limited workers compensation insurance capacity and increased prices for companies with large concentrations of employees in major cities such as New York, Chicago and Los Angeles.