Likely not much. The workers' compensation marketplace has already adapted to the absence of the Terrorism Risk Insurance Act.
I was greeted this morning with the news that Congress failed to act on the Terrorism Risk Insurance Act (TRIA) before adjourning for the year. This means TRIA will be allowed to expire at the end of the year. This was a big surprise, as most felt the House would be the reason for TRIA's not getting extended. Last week, the House passed a TRIA extension bill, but it was the Senate that ultimately failed to take up a vote on the issue.
Why did this happen? Unfortunately, Congress has a habit of tacking unrelated riders onto bills with the hope of getting these issues passed. In this case, the House added amendments to NARAB II legislation, which has to do with licensing of insurance agents and brokers. Some in the Senate were not comfortable with those amendments, which kept the Senate from approving the House bill on TRIA.
So what happens now with TRIA? The new Congress will reconvene on Jan. 6, 2015, and the expectation is it will take up TRIA. However, given what just happened, you cannot assume the new Congress will pass a TRIA bill, and, even if it does, the bill may look substantially different than what was on the table.
What does this mean to the workers’ compensation industry? We have already seen the reaction from the marketplace. Back in February 2014, carriers started issuing policies that contemplated coverage without the TRIA backstops. We saw some carriers pull back from certain geographic locations, most notably in New York City, and particularly in Manhattan. We also saw some carriers change the terms of their policies and only bind coverage through the end of the year, giving themselves the flexibility to renegotiate terms or terminate coverage if TRIA did not renew. There were legitimate concerns that the workers’ comp marketplace in New York City would be in chaos by the fourth quarter of 2014 as brokers scrambled to place coverage beyond Jan. 1, 2015. The New York State Insurance Fund was in the middle of these discussions, as it faced the prospect of having to provide coverage for employers if the private marketplace did not respond.
As the year progressed, something else happened. The marketplace responded. While some carriers pulled back in certain geographic locations, others stepped up to take their place. While some carriers tied their policy expiration to the expiration of TRIA, other carriers did not. Ultimately, employers were still able to obtain workers’ compensation coverage in the private marketplace.
What does this mean going forward? There may still be some policies out there that have endorsements allowing the carrier to cancel or renegotiate terms if TRIA expires, but I do not get the impression that this is a widespread issue. Because workers’ compensation is statutory, and carriers cannot exclude for cause, there cannot be terrorism risk exclusions on a workers’ compensation policy. The carrier’s only choice is to provide coverage or decline the risk.
While this may not hold true for other lines of coverage, the workers’ compensation marketplace has adapted to the absence of TRIA. Carriers are likely paying more attention to their geographic concentration of exposures, which means employers will have fewer choices, and may see higher pricing. But, at the end of the day, employers should be able to obtain workers’ compensation coverage without the TRIA backstop in place.