June 5, 2017

444 North Capitol Street, NW • Washington, DC • www.ncci.com

Advisory Committee on Risk-Sharing Mechanisms

Attn: Wendy Peters, Chair

Department of the Treasury

1500 Pennsylvania Avenue, NW

Room 1140 MT

Washington, DC 20220

Dear Chairwoman Peters and Members of the Committee:

On behalf of the National Council on Compensation Insurance (NCCI) we wanted to provide the 

Advisory Committee on Risk-Sharing Mechanisms (ACRSM) with additional information on 

workers compensation terrorism loss cost rating methodologies. During the Committee’s 

March 31, 2017 meeting, there was a robust discussion of terrorism rates for workers 

compensation and we wanted to ensure you had the benefit of the most recent developments.

Since TRIA inception, NCCI has contracted on three occasions with a leading catastrophe 

modeling firms. These firms adapted existing modeling techniques to assess the impact of 

terrorism threats to workers compensation insurance. 

The models developed for NCCI provide an estimate of the risk to workers compensation 

insurers due to potential terrorist events. The types of terrorist events selected were those 

that could cause large numbers of injuries and casualties, and therefore, catastrophic loss to 

insurers. Data was assembled on the insurers’ exposure and subjected that exposure to a large 

number of simulated terrorist events. The frequency of a terrorist event was also estimated. 

The resulting casualties and consequent losses were combined to estimate the total risk to the 

insurers. Finally, the impact of the terrorism “backstop” was estimated to calculate a final loss 

cost by state.

Terrorism provisions were first approved in December of 2002. In most states, the terrorism 

loss cost was 0.02. This amount was applied per $100 of payroll in order to derive terrorism 

premium. The terrorism premium was reported to NCCI under an approved statistical code. 

Over the years, the terrorism model has been updated and the impact of the “backstop” has 

been revised. As these factors have changed, NCCI has continued to revise the terrorism 

provisions in each state. 
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In 2008, the terrorism loss cost in most states was decreased from 0.02 to 0.01. The current 

approved terrorism loss costs range from 0.01 to 0.05. Carriers then apply a loss cost multiplier 

to these loss costs, so rates can vary further. 

NCCI recently retained a national catastrophe modeling firm to perform an updated modeling 

exercise. The resulting terrorism lost costs for NCCI states will be included in each respective

states’ next scheduled rate filing. Once filed, NCCI will provide the Committee with those 

updated state-specific terrorism loss costs. It should also be noted that the independent state 

rating bureaus for twelve additional states (12) utilize the same rating approach as NCCI.

NCCI appreciates the Committee’s awareness of the unique impact the terrorism peril has on 

the workers compensation line and we welcome the opportunity to work with the Committee 

going forward. Please do not hesitate to contact either of us if you have any questions.

Sincerely,

 

Tim Tucker Jeff Eddinger

Washington Affairs Executive Senior Division Executive