August/September 2022 Volume 20, Number 4 | |||||
How Well Prepared Is the WC Industry for Catastrophe?As a result of COVID-19, the National Council on Compensation Insurance (NCCI) — the workers comp ratemaking organization used by two thirds of the states — has broadened its definition of catastrophes. NCCI’s definition of a catastrophe or “cat” now includes any event, regardless of the specific peril, exceeding $50 million in aggregate WC losses. To prepare for these events the NCCI has also built a catastrophe risk factor or “cat provision” into their workers comp rates. September 11 NCCI first started to rethink its approach to catastrophes following the events of September 11. That event remains the costliest WC catastrophe to date—with more than $3 billion in losses paid. At the time, no provision was in place to help cover the losses. In response, NCCI introduced two catastrophe provisions into its rates in the years immediately following. Those rate provisions reflected the long-term view of future risk. TRIA
The first catastrophe provision covers terrorism losses. The amount of the provision was determined through a terrorism catastrophe model that considered the Terrorism Risk Insurance Act (TRIA). Enacted in 2002, TRIA is a federal backstop for insured losses from large-scale acts of terrorism. Because of TRIA, terrorism losses are contemplated separately from all other catastrophes. The approved voluntary loss cost/rate is a half penny in most NCCI jurisdictions. NCCI’s Current Cat Provisions
Since the implementation of the catastrophe provisions in the early 2000s, NCCI has updated the catastrophe modeling underlying the provisions several times. Looking Forward Williamson raises several questions at the end of her presentation. Based on relevant industry topics, there are several considerations that can shape NCCI’s understanding of WC catastrophes in years to come.
Regardless of uncertainty, the catastrophe provision included in workers comp ratemaking by NCCI, and its broadened definition, will help to prepare for potential future extraordinary loss events. |
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How Well Prepared Is the WC Industry for Catastrophe? Pros and Cons of Excluding Owners and Officers from Workers’ Comp Coverage Why Robots Are Taking All the Crummy Jobs The Downside of Robots in the Workplace
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