As Congress considers arguments for and against the extension of the Terrorism Risk Insurance Act (TRIA), one that recurs is that the insurance industry could not absorb a $100 billion loss from terrorism. Yet, without federal reinsurance, the insurance industry is already exposed to comparable shock losses of similar magnitude, in the form of hundred-year or 200-year killer windstorms or earthquakes striking key population centers in the developed world.
See, e.g., an earlier Unintended Consequences post on May 6: Unintended Consequences: Useful sources on terror risk "super catastrophes"
For possible terror attacks, one exposure not often discussed is that to workers compensation insurers. A Towers Perrin/Tillinghast study saw a $90 billion comp loss in a worst-case scenario. RMS studies reportedly found potential for $4 billion from a major truck bomb attack and $32 billion from a large-scale anthrax attack. The total capital in the workers comp market is said to be about $30 billion, so these would be major hits. Some speculate that the anticipation of this might cause a crisis in workers compensation insurance as employers with urban concentrations are non-renewed and left to get comp insurance from the residual market or assigned risk plans, if TRIA is not extended. The article, with links to more detailed studies, is at International Risk Management Institute, "TRIA's Sunset: The Dawn of a New Workers Compensation Crisis?" (May 2004)
To further put a $100 billion exposure in perspective, consider the unfunded liabilities in existing corporate pension programs. According to a recent release by Wharton, the Pension Benefit Guaranty Corporation (PBGC) estimates a projected liablity of $450 billion, almost $100 billion of that in plans sponsored by financially troubled companies. The recent default by United Airlines on $6.6 billion in pension liabilities is just one instance of such a call on PBGC. Retirement Programs Face an "Aging-Population Tsunami" - Knowledge@Wharton
Posted by dougsimpson at May 20, 2005 09:31 AM