Workers' Compensation Losses Might Top $1 Billion

Workers' compensation insurance company losses from the terrorist attack that killed and injured thousands inside New Yorks World Trade Center complex could hit $1 billion or a multiple of that figure, industry executives say.

New York States residual market fund, however, was expected to emerge relatively unscathed.

“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,” said Nancy Schroeder, assistant vice president, workers' comp for the National Association of Independent Insurers in Des Plaines, Ill.

John Cucci, vice president for the Northeast region of the Alliance of American Insurers in New York, said the overall workers' comp loss figure “could go up to a billion [dollars].”

The state, he noted, pays widows and dependent children a maximum death benefit of $400 a week–payable over a lifetime or until remarriage–less any Social Security benefits. He said a full picture should emerge shortly because New York Governor George Patakis office last year had put into place a disaster coalition with the insurance industry that makes reporting of claims faster.

David W. Ives, chief executive officer of Niis/Apex Group Holdings, a claims management consulting firm in Salem, Mass., said he estimates the loss will be $1.5 billion, but he doubts there will be any danger of insurer insolvency. The voluntary market, he said, has “pretty strong companies at the top,” such as Liberty Mutual in Boston and American International Group in New York. Mr. Ives also suggested that the “reinsurance market will spread that risk.”

Ms. Schroeder agreed that workers' comp 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 New York State Insurance Fund, according to Mr. Ives, should be relatively unaffected because it tends to write coverage for employers in high-risk trades, rather than firms whose workers are in normally low-risk office work.

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, Ms. 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,” she pointed out. These would include not only workers in the building, but business travelers in the area, delivery people whose work took them to the area and emergency personnel.

“Given the fact that the comp market is already experiencing a severe upswing in pricing, this massive exposure could affect future pricing and availability,” Ms. Schroeder said. NAII members write almost 15 percent of the nation's workers' comp insurance.

Ms. Schroeder also predicted increases in workers' comp litigation, noting that New York has broad rules on what is compensable under the workers' comp system compared with many states.

She suggested 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 workers' comp, she said, since federal employees are covered under the Federal Employee Compensation Act, which is paid by the federal government.

While some analysts have speculated that the catastrophic losses could have a major impact on workers' comp 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,” Ms. Schroeder said, pointing out that there is still no accurate estimate of the total insured loss.

She noted that pricing in workers' comp has been rising, with many employers experiencing premium increases this year. There has also been a slackening of industry competition as losses have risen, she said. (According to a spring survey by Conning and Company in Hartford, renewal quotes for workers' comp coverage were up 14 percent from last year, and there has been a 22.5 percentage point turnaround from the rate declines of 1999.)

The New York Workers Compensation Board said that as of Sept. 18 its computers and telephones were back up and running at a level that enables the board to conduct business. The board said it was working closely with the governor's office and the New York State Insurance Fund “to determine how to best deal with the potential cases that could arise from the World Trade Center Disaster. We have also been in contact with the New York State Insurance Department and individual insurance carriers.”

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, September 21, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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Workers' Compensation Losses Might Top $1 Billion

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