Terrorism and catastrophic events

Catastrophe Provisions Filing by NCCI | September 1, 2008

Rates for terrorism and catastrophe insurance coverage will decrease effective September 1, 2008, on new and renewing policies. The change is due to a filing made by the National Council on Compensation Insurance (NCCI), Oregon's authorized ratemaking organization, and approved by the Oregon Department of Business and Consumer Services (DCBS).

Terrorism

The new rate for foreign and domestic terrorism coverage is $0.01 per $100 of payroll. This rate will apply to both voluntary market and assigned risk market customers, and is a reduction from $0.02 and $0.03, respectively. The rate will be shown in the Terrorism Risk Insurance Program Reauthorization Act Disclosure Endorsement, which replaces the Foreign Terrorism Premium Endorsement.

Catastrophe coverage

The new rate for catastrophe coverage is $0.01 per $100 of payroll. This rate also applies to voluntary market and assigned risk customers. The rate did not change for voluntary customers, but it decreased from $0.02 for assigned risk customers. This rate will be shown in the Catastrophe (other than Certified Acts of Terrorism) Premium Endorsement.

Combined change

Prior to September 1, 2008, the premium for domestic terrorism coverage was collected as part of the catastrophe premium, under the Domestic Terrorism, Earthquakes and Catastrophic Industrial Accidents Premium Endorsement. Fifteen percent (15%) of that premium was just for domestic terrorism. The remainder of the premium was for earthquakes and catastrophic industrial accidents. With the new rate structure effective September 1, 2008, premium for foreign and domestic terrorism coverage is combined under one rate, with premium for catastrophes under the second rate.

Costs for terrorism and catastrophe coverage will be lower with these changes, but workers' compensation coverage will not change.

SAIF's endorsements

All workers' compensation insurance policies issued with an effective date of September 1, 2008, or later, will have the following endorsements attached to the policy:

• Terrorism Risk Insurance Program Reauthorization Act Disclosure Endorsement
• Catastrophe (other than Certified Acts of Terrorism) Premium Endorsement

History of terrorism and catastrophe coverage

Terrorism Risk Insurance Act of 2002

As a result of the events of September 11, 2001, Congress passed the Terrorism Risk Insurance Act (TRIA) of 2002, creating a federal backstop for defined "acts of terrorism." This Act did not change the coverage provided by individual workers' compensation policies, but provided reinsurance for insurance companies in the event of a covered loss.

When the Terrorism Risk Insurance Act of 2002 was created, no portion of workers' compensation premium was devoted to the risk of loss associated with foreign terrorism. To fund this exposure, NCCI filed foreign terrorism risk rating values for each state. The Oregon rate was approved by DCBS and was shown on the Foreign Terrorism Premium (FTP) Endorsement attached to each policy.

Terrorism Risk Insurance Extension Act of 2005

The Terrorism Risk Insurance Act of 2002 was set to expire on December 31, 2005. Since foreign terrorism continued to be an exposure for workers' compensation insurance, Congress passed the Terrorism Risk Insurance Extension Act (TRIEA) of 2005. This Act extended the Terrorism Risk Insurance Act of 2002 with certain amendments to event triggers and reinsurance amounts.

Domestic Terrorism, Earthquakes, and Catastrophic Accidents

After establishing a rate to cover the risk associated with acts of foreign terrorism, NCCI determined the exposure to risk associated with domestic terrorism, earthquakes, and catastrophic industrial accidents was still unfunded. On January 1, 2005, DCBS approved a new premium charge filed by NCCI to cover these exposures. This premium charge was separate from, and in addition to, the premium developed in response to foreign terrorism exposures. The approved rate was shown on the Domestic Terrorism, Earthquakes, and Catastrophic Industrial Accidents (DTEC) Premium Endorsement attached to each policy.

Terrorism Risk Insurance Program Reauthorization Act of 2007

When Congress extended the 2002 Act in 2007, it also revised the definition of "acts of terrorism" to include domestic terrorism, it updated insurer deductible provisions, and it set a $100 billion annual liability cap for insurance companies and the federal government. This new act, called the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) of 2007, extends the program until December 31, 2014.
TIRPRA of 2007 does not change workers' compensation insurance coverage or increase the cost of this insurance.

Additional Resources

Please note that these links go to websites of other organizations. SAIF does not control their content. 

• Key Provisions of the Act, according to the National Council on Compensation Insurance
• U.S. Department of Treasury
• Insurance Information Institute
• International Risk Management Institute
  

Following are some questions and answers regarding the Terrorism Risk Insurance Program Reauthorization Act of 2007, the Terrorism Risk Insurance Extension Act of 2005, the Terrorism Risk Insurance Act of 2002, and the Domestic Terrorism, Earthquakes, and Catastrophic Industrial Accidents filing of 2005.

Why did I receive the terrorism and catastrophe endorsements?

The Terrorism Risk Insurance Program Reauthorization Act requires that we notify you of the provisions of the Terrorism Risk Insurance Act of 2002 and the Program Reauthorization Act of 2007. These endorsements provide that notification.

Does this change my coverage?

Your coverage is not affected by the endorsements or by the Terrorism Risk Insurance Program Reauthorization Act of 2007.

Will I have to pay more premium?

No. Your premium is not changed by these endorsements.

What are the endorsements that I just received?

Terrorism Risk Insurance Program Reauthorization Act Disclosure Endorsement 
This endorsement is being issued to all new and renewing policies effective September 1, 2008.

The purpose of the endorsement is to notify all workers' compensation policyholders of the Terrorism Risk Insurance Act of 2002 as amended and extended by the Terrorism Risk Insurance Program Reauthorization Act of 2007, signed into law on December 26, 2007. It explains how an insurance company like SAIF Corporation would be protected by the federal reinsurance program created by the 2002 Terrorism Risk Insurance Act and updated through the Program Reauthorization Act of 2007. The reinsurance created by these Acts is triggered by defined acts of foreign and domestic terrorism.

Policyholder coverage is not impacted by this endorsement. The rate for this exposure is $0.01 per $100 of payroll. This rate applies to both voluntary market customers and assigned risk market customers, and is a reduction from $0.02 and $0.03 respectively.

Catastrophe (other than Certified Acts of Terrorism) Premium Endorsement
This endorsement explains charges for the risk of catastrophic events, including earthquakes, industrial accidents, and noncertified acts of terrorism. It will be issued to all new and renewing policies effective September 1, 2008.

Policyholder coverage is not impacted by this endorsement. The rate is $0.01 per $100 of payroll and applies to voluntary market customers and assigned risk market customers. The rate did not change for voluntary customers, but it decreased from $0.02 for assigned risk customers.

I thought we always had terrorism coverage. Why do we have to pay now for something we've always had?

While it's true your workers' compensation policy has always provided coverage for terrorism and catastrophes, the risk of loss has been considered negligible and was not specifically included in rate-making. The National Council on Compensation Insurance (NCCI) used a recognized national firm specializing in risk assessment modeling to help develop the special terrorism and catastrophe rating values for each state.

Do I have to pay this if I don't want terrorism and catastrophe coverage?

You cannot elect to forego either terrorism coverage or catastrophe coverage on your workers' compensation insurance policy. NCCI made the filings, which were approved by the Oregon Department of Consumer and Business Services (DCBS), which is responsible for regulating insurance providers in Oregon.

Is every workers' compensation carrier charging premium for terrorism and catastrophe exposures?

To our knowledge, yes. These filings were approved by DCBS for application in Oregon.

Were the charges for domestic and foreign terrorism collected separately in the past?

Yes. Prior to September 1, 2008, the premium for domestic terrorism coverage was collected as part of the catastrophe premium under the Domestic Terrorism, Earthquakes, and Catastrophic Industrial Accidents Premium Endorsement. Fifteen percent (15%) of that premium was just for domestic terrorism. The remainder of the premium (85 percent) was for earthquakes and catastrophic industrial accidents. With the new rate structure, premium for foreign and domestic terrorism coverage is combined under one rate, with premium for catastrophes under a separate rate.

Will the charge for these exposures be the same every year?

We do not know. NCCI usually files rates annually to be effective as policies renew on or after January 1 each year. There is no guarantee the rate will stay the same every year.

Who gets to keep the terrorism and catastrophe exposure premium?

Premium collected to cover the risk of terrorism or catastrophic losses is kept by the insurance carrier just the same as premium collected to cover any other risk.

Will implementation of the premiums for terrorism and catastrophic losses have any effect on SAIF's pricing (rate tier selection) of its policies?

No, SAIF will continue its usual underwriting practices.

Who gets the money in the event of certified losses?

Any monies paid by the federal government under the provisions of the Act would be paid only to those insurance carriers who have perfected a claim or claims under the Act.