As the 6-month anniversary of the catastrophic events of September 11, 2001,
passes, it is evident that repercussions from those events continue to impact
on the workers compensation system and its marketplace. The ripples that affect
most aspects of workers compensation seem to be especially felt in the parts
of the compensation system relating to insurance coverage and, as a result,
to its marketplace.
The acts of September 11 have led to new underwriting exposures and concerns.
This is being driven in part by the fact that no workers compensation act excludes
injuries resulting from terrorism. Unlike other commercial lines where exclusions
have been proposed, none are in the offing for workers compensation. The state
of Minnesota has taken it one step further by issuing a memo through its Department
of Commerce stating that terrorism exclusions for workers compensation products
would not be approved.
Since the terrorism exposure cannot be limited, there is concern for the
first time among underwriters about the concentration of an insured's workforce
in a single location, especially high-rise buildings in large urban areas. Insurers
have begun to decline writing coverage for employers heavily concentrated in
urban areas whose workforce is largely composed of white-collar workers. This
type of employer has traditionally been a low-premium and exposure risk. It
has gone from being one of the easiest workers compensation accounts to place
to one of the most problematic.
Impact on Rating
As discussed in The Continuing Impact of September
11 on Workers Compensation, the exclusion of the losses resulting from September
11 from the experience rating of those employers affected has been universally
accepted. Another area of workers compensation rating that can be significantly
influenced by these losses involves the loss cost factors developed for the
states where the losses have been paid. NCCI in its Item Filing B-1377 proposed
that a 4 percent rate increase be applied to loss costs/rates for all workers
compensation class codes as a provision for catastrophes.
At this point, the filing has been disapproved in the following states: Alaska,
Alabama, Arizona, Colorado, Connecticut, Iowa, Illinois, Kansas, Kentucky, Maine,
Missouri, Montana, Nebraska, New Hampshire, New Mexico, Nevada, Rhode Island,
South Dakota, Vermont, and Virginia. It has been withdrawn in Oregon and is
not applicable in Indiana, Minnesota, North Carolina, and Wisconsin. No action
on this filing has been taken in the following jurisdictions: Arkansas, District
of Columbia, Florida, Georgia, Idaho, Louisiana, Maryland, Mississippi, Oklahoma,
South Carolina, Tennessee, and Utah.
Risk Retention Decisions
With the pricing of workers compensation coverage escalating, more entities
are considering risk retention options. Deductibles are one alternative an employer
may choose or—in this market—may have chosen for it by the insurer. Another
risk retention option that has been popular in previous hard markets is self-insurance.
See The Workers Compensation Self-Insurance Decision for more specific information about how to evaluate this option.
In the current hard market, employers considering this option find themselves
in a Catch-22. The majority of states that allow self-insurance also require
excess workers compensation insurance. In the aftermath of September 11, this
line of coverage has become pricey and difficult to find.
Another retention option being considered by entities is the provision of
coverage through fronted arrangements using either individual or group captives.
This risk retention mechanism has gained appeal as an alternative to self-insurance
since excess workers compensation insurance has become problematic to find.
See Captives 101: What Are They, and Why Do I Want One? by Michael R. Mead, CPCU to read more on this topic.
As we reported here several months ago, there has been some concern whether
the language contained in the various workers compensation acts is broad enough
to encompass within its scope of coverage the type of losses that occurred on
September 11. The first state to take action was Illinois where HB 3658 was
introduced in an attempt to afford coverage for a worker injured by a neutral
force while at the job site. This legislation appears stalled in committee.
Another state to take action is Indiana. Its SB
71 would provide workers compensation benefits for an employee killed or
injured by a terrorist attack while going to or coming from the place of employment
or in the course of carrying out the duties of employment. This bill is currently
still in committee.
The Current Marketplace
The workers compensation market that was already hardening before September
11, 2001, continues to reel. Premium increases of 50 percent and more are not
uncommon. Capacity has also continued to diminish. There is some hope that some
of the new players coming out of Bermuda will show interest in writing workers
compensation coverage at more competitive pricing since they are not encumbered
by either a book of business whose loss ratio was deteriorating prior to September
11 or losses stemming from the events of September 11.
Entities and their brokers would be well served to prepare renewal submissions
as early as possible. The submissions must be complete and concise, allowing
the underwriter to quickly digest the type of risk being reviewed. One new feature
that entities in high-rise buildings should consider adding to their submissions
are details of the evacuation plans in place. This information would help with
the underwriter's concern over a high concentration of employees in one building.
When an underwriter is flooded with submissions, those that receive attention
are those that are thorough, easy to follow, and received well in advance of
the renewal date.
Note: See other terrorism articles