According to a Standard & Poor’s study released Jan. 9, the effects of the Sept. 11 attacks are taking a toll on workers compensation insurers. Rates are ready to rise and it has become increasingly difficult for employers to obtain coverage.
As reported in the Wall Street Journal, insurers have realized that there are concentrations of risk that have not been previously considered in underwriting decisions. Catastrophic workers’ comp losses were not an issue before the Sept. 11 terrorist attacks, according to Robert Smith of Willis Group Holdings Ltd., and now large companies grouped in one area are considered a significant risk. The executive officer states that agents and brokers are now required to list locations of more than 100 employees by most insurers, and in many cases disqualifying those companies from being insured.
In addition to the increased risk of insuring large companies, rate increases are set to take effect in excess of as much as 50 percent nationwide, according to S&P. Workers’ comp coverage is unlike other types of coverage in that it is not allowed to exclude war or terrorism from its coverage by state insurers.
Many lines of coverage have been granted terrorism exclusions by their states, and without the benefit of reinsurance, this means greater risks.
Many of the world’s major reinsurers announced that they would not provide coverage for terrorism after the Sept. 11 attacks. Workers’ comp insurance simply cannot exclude this type of coverage, thus making it difficult to insure and unaffordable to insurers.
According to the S&P report, insurers could easily become bankrupt after a terrorist attack on a large corporation. Already, the losses for workers’ comp insurance are expected to account for 10 percent, or about $4 billion of the total loss.
Due to tight state regulations, S&P predicts that the increases will likely develop over time, as companies seek approval of them.
The problems of workers’ comp coverage continue on Capitol Hill, as U.S. lawmakers have been thus far unable to develop a federal terrorism insurance bill. Congress returns on Jan. 22.
The Wall Street Journal article concluded by noting that the response of the federal government in the coming months will be vital to the survival of the workers’ comp industry.