Workers’ Comp Insurers Grapple with Market Changes after 9/11

February 13, 2002

Both small and large workers’ compensation insurers are experiencing unsettling challenges to their business thanks to the lack of reinsurance coverage in the wake of the Sept. 11 terrorist attacks according to the National Association of Independent Insurers (NAII).

The NAII is cautioning that the lack of reinsurance and the fact that workers’ comp policies are not permitted by state law to have terrorist exclusions could cause many companies to re-evaluate their strategies for workers’ compensation causing some to drop the business altogether.

“Without federal backstop legislation all insurers are facing the problem of reinsurance unavailability and smaller and medium-sized companies certainly face the same problems,” said Nancy Schroeder, NAII assistant vice president, workers’ comp. “A major chemical, nuclear or biochemical attack could put any company in financial jeopardy without the protection of reinsurance. Some of the smaller and medium-sized companies may simply be hesitant to put their own surplus at risk. These companies will take great precautions and could even withdraw from the market if they feel it necessary to protect their own financial health.”

Schroeder added that other “twists” in assessing new risks have emerged since the war on terror began.

“Before Sept. 11, most people thought of employees in factories or on construction sites as the most likely workforce to sustain injuries and therefore losses,” Schroeder said. “Today, the major concern is about white-collar office workers in large urban areas where a terrorist attack would have the greatest impact.”

New concerns over biological attacks like the anthrax attacks that occurred late 2001 and concerns with warfare threats such as a smallpox outbreak also raise new questions for workers’ comp insurance companies.

“In most states individuals who become ill with any disease contracted in the workplace would be covered for treatment,” Schroeder said. “The gray area of this scenario is when workers exposed to a disease do not become ill. Will workers’ compensation insurance cover prophylactic treatment or mental distress associated with the exposure? Will court rulings determine that any airborne germs that make workers sick trigger coverage in every instance, including coverage for the worker who contracts the flu or a common cold? These are just some of the new questions and concerns workers’ compensation insurers, big and small, will now face in the aftermath of Sept. 11-in addition to their lack of reinsurance.”

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