Large employers located in certain cities or in certain industries may find workers' compensation insurance harder to land and, when they do, at a higher price, according to Marsh Inc.
Marsh asserts that the reduced capacity could grow as the Terrorism Risk Insurance Program Reauthorization Act of 2007 comes to its 2014 expiration date, and the impact is already evident as carriers have reduced the insurance capacity for employers in those high-risk cities or industries.
Carriers have commonly watched workers' compensation exposure to determine the potential impact that, say, an earthquake would have on an employer's book of business. California, in particular, often saw this practice, though that changed after the 9/11 attacks. Workers' compensation carriers and reinsurers started to focus on employee concentrations in large cities that were identified as high-risk targets for terrorist attacks.
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"Insurance carriers continue to view risks from a concentration perspective — both on an individual accounts basis as well as the aggregate across their portfolio and correlated lines of business," Marsh said in a report. "Some carriers will decline a risk outright simply because they are 'overlined' in a particular Zip code or city. Or, the carrier might impose a surcharge on the premium for the use of their limited capacity for a particularly large workers' compensation risk."
While the reduced capacity could affect any employer with a large number of employees in one location, it is especially prevalent among financial institutions, hospitals, defense contractors, higher education schools, hotels, professional services locations and nuclear, the paper finds. Ultimately, this could lead to higher rates for employers.
"If a policy is being issued that provides coverage beyond the TRIPRA expiration date, and the future of the legislation is not known, carriers will likely price this under the assumption those protections will be allowed to sunset or may be significantly modified," the paper states.
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