Business Insurance covers the controversy over the method AIG uses to calculate terrorism rates for workers compensation policyholders. Tennessee and Texas are among the states taking issue with the company’s rate calculations, which deviate from the methodology used by NCCI.

“The Terrorism Risk Insurance Act required commercial lines insurers to offer coverage for acts of foreign terrorism. To expedite their offerings, the act allowed insurers to set rates without obtaining regulatory approval. But the mandate also allowed regulators to later evaluate insurers’ rates and reject them if they found them excessive, unfairly discriminatory or inadequate, explained Peter Burton, senior division executive in Wayne, Pa., for the NCCI.”

These are largely uncharted waters. As the article points out, this is “a peril without a loss history.” Nevertheless, many state authorities regard the AIG method of rate calculation as discriminatory because it is based on a percent of manual premium. Therefore, high risk industries would be heavily burdened under this rate calculation, even though the exposure is likely to have more to do with employee concentration or geographic locale. For example, a financial firm with a home office in Los Angeles is likely to be a greater terrorism risk than a construction firm in Tennessee.
For more information, see NCCI’s terrorism resources. In the most recent update, NAIC is urging Congress to act now, “to ensure insurance marketplace stability and economic security before the expiration of the Terrorism Risk Insurance Act (TRIA).” The law is scheduled to expire on December 31, 2005.