Contractors working overseas for the Department of State can expect big increases in their premiums upon renewal after the government found no insurers willing to take up the insurance program for non-government employees, says an executive with Marsh.

Mike Dower, senior vice president for Rutherfoord, a part of Marsh & McLennan Agencies and subsidiary of Marsh, made the observation during a webinar discussing international workforce issues, principally the Defense Base Act.

DBA, as it is most commonly referred to, is similar to workers' compensation insurance in the United States, but covers independent contractors working for the government in overseas locations. It can also provide additional benefits related to medical care and repatriation.

In a discussion with moderator Timothy Mahoney, president, Marsh's Global Risk Management division, Dower explains that to streamline insurance purchase, hold down costs and reduce liability, the State Department contracted with CNA for DBA coverage. The practice, Dower says, went back to 1991.

However, that contract lapsed in July and the department received no bids on its request for proposal from other insurers. The result, Dower says, is that the program now goes to the open market.

“This move is likely to result in significant pricing increases to contractors, in many cases multiples over what they have paid historically in the DOS [Department of State] program,” says Dower. “In addition, minimum premiums that are significantly higher than the expiring DOS program pricing may apply. The impact will be of great significance to contractors as they calculate their bid pricing as either contractors or sub-contractors for DOS work. The significance of the price increase will also be felt in the overall DOS budget for fiscal year 2012 and 2013.”

Downer says the premium increases are occurring for two reasons: carriers feel open-market pricing is the only way to determine what the true cost of the coverage should be; and losses are making coverage a money-losing proposition.

“It will be very interesting to see how the market responds to what is happening right now in the world, particularly North Africa,” says Bruce Cohen, managing director, Marsh's multinational client service, referring to the recent demonstrations throughout the region.

However, possibly offsetting some of the expected increases, Cohen points to the traditional competition for these risks. “Foreign casualty is already a highly competitive segment and I'm expecting carriers to continue to invest. Carriers have already invested quite a lot in terms of evacuation and travel-assist services as the best way to differentiate themselves. I think that is to everyone's benefit.

“But I expect underwriters are going to scrutinize more closely than ever insureds' geography and where they are heading, what their security protocols are and even nuances like what post-event family support are they providing to their people.”

He continues, “I'm expecting the carriers to generally become more discriminating, but at the same time more anxious to write the best risks out there. It's a competitive segment and I expect it to remain that way.”

Special Reports /

Contractors Can Expect Big Jump in DBA Insurance Premiums

Related Stories

Recommended For You