The WCIRB has released the Workers’ Compensation California Terrorism Risk Assessment study that was developed in partnership with Risk Management Solutions, Inc. (RMS), a leading provider of catastrophe modeling analytics.
RMS conducted a California terrorism risk assessment for the WCIRB to determine the proportion of workers’ compensation loss payable that is covered by insurers, the US government, and retained by the policyholders under the US Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) for calendar year 2019. RMS quantified total workers’ compensation losses using an analysis of exposure data from member companies of the WCIRB.
RMS quantified total workers’ compensation losses using an analysis of exposure data from member insurers of the WCIRB. The study is based on data provided by the WCIRB and compiled using RMS terrorism exposure assessment models. The WCIRB portfolio contains the policy and exposure data for $544 billion of business payroll insured by members of the WCIRB.
Terrorism risk is very concentrated in nature and often varies significantly over small geographic areas. The resolution of address data is therefore very important in determining a location’s proximity to targets, hazard level, and financial impact, given a terrorist attack occurs. The quantification of terrorism risk, as a result, is greatly dependent on the detail and positional accuracy of the underlying exposure data
Based on an attack catalog drawing from approximately 60,000 terrorism events, RMS analysis suggests that there is a 9.5% probability of triggering the TRIPRA program (or exceeding $180 million for all TRIPRA eligible lines of business). This should not be interpreted as a 1-in-10 chance of terrorist attack. Instead, it indicates that the methodology used to generate the exceedance probability curve considers events which are very severe but unlikely due to pervasive counter- security measures.
Without TRIPRA, the estimated average annual loss is $27.9 million. With TRIPRA, the estimated average annual loss retained by WCIRB member insurers is $21 million, which corresponds to an average loss rate per full time equivalent employee of $1.85 and an average loss rate per $100 of payroll of $0.0039.
Exposure is highest in the Los Angeles-Long Beach-Anaheim Metropolitan Statistical Area (MSA), accounting for about 35% of the portfolio’s total FTE. The San Francisco-Oakland-Hayward MSA and the San Jose- Sunnyvale-Santa Clara MSA consist of 17% and 11%, respectively, of the portfolio’s exposure. Together, these three metropolitan areas make up about 63% of WCIRB’s exposure.
Terrorism is an urban risk, predominantly in areas where there are large concentrations of people and business activity. Although Los Angeles has the highest overall exposure, the largest concentration of exposure for a 400-meter radius lies in the main central business district in San Francisco, also known as the financial district.
Due to the high density of exposure and potential terrorist targets in the city, San Francisco generates the highest estimated average annual losses in California with an excess of $12 million in estimated average annual losses retained by insurers under the 2019 TRIPRA.