TRIA Renewal and Workers’ Compensation

At the 2019 NCCI Annual Issues Symposium, David Priebe, Vice Chairman from Guy Carpenter talked about the upcoming renewal of the TRIA backstop.

Prior to 9-11 terrorism risk was included in “all risk” policies. Following those terrorist attacks the insurance marketplace indicated they were uncomfortable with terrorism risks which made securing coverage challenging for some properties and employers. The Federal Government developed the TRIA program as a backstop for the insurance industry in 2002 to provide some level of financial certainty in the insurance and reinsurance of terrorism risks.

9-11 changed the way the insurance industry looked at issues such as concentration of risk and total risk portfolio. Carriers started tracking employee concentration in geographic areas and also their total portfolio exposures in geographic areas.

TRIA is not a government give-away to the insurance industry. Instead it is a vehicle to spread the risks associated with potential terrorism losses. It has a variety of layers of protection to the Federal Government including a minimum loss threshold and a requirement that the Federal Government must certify the terrorist event.

The amount of TRIA backstop provided is capped at $100 billion. This amount has not changed since the law was passed in 2002. Some are questioning whether this is amount is still adequate.

Workers’ compensation is the most challenging line when it comes to potential terrorism exposures because there is no ability to exclude coverage because of the type of loss and there are no policy limits. Also, the long tail nature of workers’ compensation leads itself to occupational disease claims that could arise from a terrorism attack.

There are currently over 20 terrorism risk pools globally that developed since 9-11. One big hole in all these is that only TRIA covers workers’ compensation.

One question is can the insurance industry adequately withstand terrorism risks. Yes when it comes to a conventional attack. However, it is a different story when it comes to NBCR losses (nuclear, biological, chemical, radiological). The potential loss for a nuclear detention in Manhattan, NY could be over $800 billion dollars. That is more than the industry could sustain without TRIA in place.

In 2013, AM Best reviewed carrier reliance on TRIA and determined there were 226 carriers that were terrorism exposed. 34 of those carriers failed stress tests because they were workers’ compensation dominant and had surplus under $500 million. Absent TRIA, a number of smaller carriers would go out of business if there was a NBCR terrorist attack.

The risks associated with terrorism continue to evolve. We are seeing more “lone wolf” style attacks where a small unaffiliated group carries out an attack. These attacks are smaller in terms of costs, but they are becoming more frequent.

When TRIA was last set to expire in 2015 there was significant disruption seen in the insurance industry. Carriers started issuing policies for less than one year because of the uncertainty of the renewal. There were also certain geographic areas and industries where obtaining coverage became a challenge. Both the workers’ compensation and property markets were impacted by this market pull back due to uncertainty.

TRIA is next set to expire at the end of 2020. It is imperative that the insurance industry and Congress works together to renew TRIA timely to avoid market disruption again. It is felt that Congress understands the importance of providing coverage for NBCR attacks after they saw the response from the insurance industry leading up to the potential 2015 expiration. However, we could see changes to retention levels and coverage limits.