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Risk concentration, presumption laws in focus for comp

Empire State building

Underwriting workers compensation for a seemingly low-level risk such as office work changed drastically after 9/11, when location — whether a business’s operations are located in a potential terrorist target area — became a larger factor in assessing risk, experts say. 

“It brought a different level of risk concentration understanding (in workers comp) that most firms hadn’t thought about,” said Mark Moitoso, Atlanta-based head of risk practices for Lockton Cos. LLC. Prior to 9/11, the types of risk aggregators that were considered in workers compensation were in industries such as manufacturing, offices located in earthquake zones and airplanes, he said. 

“Nobody thought about terrorism and the concentration of risk that could bring,” Mr. Moitoso said. “Workers compensation is now a (catastrophe) model event for underwriting companies — simulating bombs that go off in downtown centers and understanding how much their capital could be at risk.” 

“Carriers often have had to walk away from what on paper could seem to me an otherwise profitable risk,” said Harry Merker, Miami-based managing director, east region, for middle market at Aon PLC. “For the tech company that has 700 employees in the Empire State Building — because that is considered a fairly desired target from a terrorism standpoint — the cost to insure the terrorism component of that workers compensation program is such that it can become cost prohibitive for an insurer to pick up the burden.”

And based on workers comp ratings in various jurisdictions, “carriers don’t have the ability to pass that along,” he said.

Another impact of 9/11 is the continued trend of establishing rebuttable presumptions for injuries suffered by first responders. The long-term health impact on police and firefighters of their recovery work at the World Trade Center site was one of the “catalysts in the evolution of those particular laws,” Mr. Merker said. 

“As those laws have evolved, so too has carrier appetite as it relates to writing insurance for insureds that have exposure in those specific class codes,” he said. “Because workers compensation is such a long-tailed line of insurance, it can create issues with long-term profitability for carriers writing those particular risks.”