Tria was first authorised back in 2002 in the aftermath of the September 11 terrorist attacks. It was reauthorised in 2005 and again two years later with broad bipartisan support. It is currently scheduled to close at the end of this year, although the insurance and reinsurance industry are just two of the interested parties calling for its reintroduction.
The majority of debate and discussion surrounding Tria’s expiration has focused on the property side of the industry, but RAND has firmly put the spotlight on workers’ compensation. This cover is mandatory for almost all US employers, and RAND has painted a bleak portrait of the potential outcomes should Tria be removed for not only businesses, but also possibly for the state where an attack takes place.
“Compared to other insurance lines covered by the act, workers’ compensation offers insurers less flexibility to control terrorism exposure through modifications in coverage,” explained RAND.
As defined by state statute, workers’ compensation cover cannot exclude terrorism, impose policy limits or exclude losses from nuclear, biological, chemical or radiological attacks. But, should Tria be withdrawn and reinsurers decide not to up their limits for these exposures, it is feasible some insurers will cut back their participation in the sector owing to possible aggregate losses. Others may leave the workers’ compensation market entirely.
That would not bode well for businesses, said RAND.
“Without the act in place, employers perceived to be at high risk for terrorism might have to obtain coverage in markets of last resort (residual markets) which could charge higher premiums. The higher cost of coverage, in turn, would tend to reduce labour incomes and economic growth even if there is never another attack, although these effects are likely to be small.”
And RAND warned the removal of Tria and the increased reliance on the residual markets could see the state where an attack takes place foot the bill for workers’ compensation losses. This would ultimately hit the businesses and taxpayers within that particular state, a situation which would make the challenge of repairs even more difficult.
“The federal Terrorism Risk Insurance Act, on the other hand, would spread those losses across the country,” explained RAND.
The American Insurance Association has pointed to Rand’s report as another example of why Tria should be extended.
“The latest RAND report highlights the importance of Tria’s reauthorisation to workers’ compensation coverage,” said Stephen Zielezienski, AIA senior vice president and the organisation’s general counsel.
“Tria plays a vital role in helping to maintain well-functioning workers’ compensation markets throughout the nation. Tria remains vital to our nation’s economic security as terrorism remains a real threat. Given the fundamental role that Tria plays in providing market stability and an orderly post-event recovery, coupled with the programme’s taxpayer protections, it deserves prompt reauthorisation by Congress.”