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The Market for Workers' Compensation Insurance in the Absence of the Terrorism Risk Insurance Act

• Compared with other insurance lines covered by the Terrorism Risk Insurance Act (TRIA), workers' compensation (WC) offers insurers less flexibility to control terrorism exposure through modifications in coverage: WC policies cannot exclude terrorism, impose policy limits, or exclude losses from nuclear, biological, chemical, or radiological (NBCR) attacks.
• If reinsurers are unwilling to provide much more coverage for both conventional and NBCR attacks, insurers might respond to TRIA's expiration in December 2014 by declining to provide WC coverage to employers who present a high geographic concentration of potential losses.
• Without TRIA in place, employers perceived to be at high risk for terrorism might have to obtain coverage in markers of last resort known as residual markets, which could charge higher premiums.
• The higher cost of coverage would tend to reduce labor incomes and economic growth even if there is never another attack, though these effects are likely to be small.
• Expiration of TRIA and growth in the residual market might also mean that WC losses from a catastrophic terror attack would largely be financed by businesses and taxpayers throughout the state in which the attack occurs, adding to the challenge of rebuilding in that state. TRIA, in contrast, spreads such risk across the country.