As the heroic rescue and recovery efforts in the wake of the Sept. 11 terrorist attacks continue, workers’ compensation insurers will have an important role in repairing the economic damage resulting from the tragedy, according to the National Association of Independent Insurers (NAII).
“We are still coming to grips with the almost incomprehensible human toll of these attacks,” said Nancy Schroeder, NAII assistant vice president – workers’ compensation. “Our first concern is for those injured in the disaster and for the families and friends of those killed in the attacks.”
However, Schroeder indicated that insurers will be on the front lines of helping individuals and businesses put their lives back together after the national tragedy. “We take this responsibility very seriously and are ready to start the rebuilding process and help heal the financial wounds caused by the attacks,” she said.
Although media coverage has been focusing on the potential impact to the life and property insurance markets, many analysts have overlooked how the tragedy will affect the workers’ compensation market.
“With over 5,000 people reported as missing in the World Trade Center collapse, there could be hundreds of millions, or even billions of dollars in workers’ compensation losses. This is an unprecedented amount for one event,” Schroeder said.
Pricing in the workers’ compensation market has been rising over the past year, with many employers experiencing premium increases in 2001. The primary reasons for these increases are a return to more adequate prices plus an increase in many of the underlying costs. As a result, some analysts have speculated that the catastrophic losses could have a major impact on workers’ compensation availability and affordability in New York.
“It is too early to predict what the long-term ramifications on the workers’ comp market in New York and across the country might be,” Schroeder said. “We still do not have an accurate estimate of the total insured loss.”
Schroeder pointed out that workers’ compensation insurers are well capitalized and ready to meet all their financial obligations. “The exposure appears to be spread out among many companies and reinsurers. It is not likely that this disaster will result in any major insolvencies,” she said.
The World Trade Center, which housed roughly 50,000 employees, was home to 430 businesses, including several large corporate tenants, many of whom would likely have been self-insured, Schroeder noted. However, smaller companies probably maintained standard business insurance packages through private insurers, perhaps with higher coverage layers covered through the reinsurance market.
“The workers’ comp implications are staggering when you consider that so many people in the buildings or in the vicinity at the time of the blast and collapse were there to work – and therefore covered under the New York workers’ comp law,” Schroeder pointed out.
These would include not only employees in the building, but business travelers in the area, delivery people whose work took them to the area, and emergency personnel.
Schroeder also predicted increases in workers’ comp litigation. New York has broad rules on what is compensable under the workers’ comp system compared with many states. However, these are extraordinary events that could result in new types of claims that are not now compensable. For example, employees who worked in the area and witnessed the disaster might claim mental disability under their workers’ comp coverage.
In contrast, the Pentagon blast is unlikely to have much of an impact on comp since federal employees are covered under the Federal Employee Compensation Act, which is paid by the federal government, Schroeder noted.
According to a spring survey by Conning and Company, renewal quotes for workers’ comp coverage were up 14 percent from last year, and a 22.5 percentage point turnaround from the rate declines of 1999. “Given the fact that the comp market is already experiencing a severe upswing in pricing, this massive exposure could affect future pricing and availability,” Schroeder said.
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