You Don't Need an Explosion to Blow Through Workers’ Comp. Protection
May 02, 2013| By Brooke Cote |
The Texas fertilizer plant explosion shattered many lives and it will be some time before we know the financial impact on the workers' compensation insurers involved in the loss. It will be a very high number. Had the explosion occurred during prime work hours, the number would be even higher.
But main street risks can and do generate horrific injuries, too. The critical question for these insurers is the same as that for the carriers on the fertilizer plant. Will my reinsurance be enough to cover my losses?
Evaluating reinsurance coverage and limits adequacy is no easy task. How much reinsurance should I buy for my book of business? Two steps can get you closer to an answer. The first is a consideration of the multi-claimant exposures to your insureds, no matter how small or safe they seem. The second is using accurate, current data for the cost to treat a severely injured employee.
As to the cost: the workers' compensation loss for a 36-year-old male worker suffering a severe injury, such as quadriplegia or major burns, is $15 million - $17 million, based on 6% medical cost inflation. Not all companies build medical cost inflation into their thinking, yet it does contribute to the amounts they ultimately pay. Using a $15 million estimate for lifetime benefits, let's consider the exposures.
- Motor Vehicle Accidents: If a group of employees travels anywhere together, the business has exposure to a catastrophic loss. Think four executives flying and then driving to a convention site or a client. Or maybe just a restaurant catering crew on their way to an event. What about a company commuter van?
- Earthquake, Tornado and other Natural Catastrophes: Natural catastrophes do not discriminate by type and size of insured - a local retailer or small office can be just as exposed as a manufacturer. Falling walls and flying debris are likely to cause injuries, many of them serious.
- Fires and Explosions: Many types of businesses use materials that can fuel fires and generate explosions, and yet you would not classify them as industrial risks. Dust at grain storage facilities and faulty propane tanks in office buildings are just two examples producing unlikely multiple-employee claims.
The rest of the evaluation is for you to do. Based on your reinsurance program, are you confident that the limits are enough to handle a car accident, tornado or fire? Or is there a possibility that the reinsurance limits will be depleted before your workers compensation benefits are fully paid?
Major events make us pause and take stock, and it is no different for insurers after a catastrophic loss.