Acquisition Strategy for Defense Base Act (DBA) Insurance

The Defense Base Act (DBA) (42 U.S.C. 1651 et seq.) provides workers compensation type insurance coverage for contractor employees performing under government contracts outside the United States. It is intended to be a counterpart to domestic workers compensation coverage and, as such, is the sole recourse for workers who suffer on-the-job injuries or death while engaged in work in foreign locations under government prime contracts and subcontracts. Under a companion law, the War Hazard Compensation Act (WHCA) (42 U.S.C. 1701 et seq.), the government essentially self-insures for those instances in which an injury to or death of a DBA-covered worker arises from a war risk hazard. Both the DBA and WHCA programs are overseen and administered by the Department of Labor (DOL).

With the significant and unprecedented buildup of contractors providing support to deployed military forces involved in both Operation Enduring Freedom and Operation Iraqi Freedom, the market for DBA insurance grew significantly. From a somewhat small and insignificant part of the casualty insurance business line—government-wide DBA premiums paid to the top four DBA insurance carriers totaled $18 million in 2002—it grew over twentyfold to a major market segment covering almost 200,000 prime and subcontractor employees and generating annual government-wide premiums of more than $400 million.

Section 843(d) of the Duncan Hunter National Defense Authorization Act for Fiscal Year 2009 (Public Law 110-417), enacted October 14, 2008, required the Secretary of Defense to submit a report to Congress on DoD’s acquisition strategy for Defense Base Act (DBA) insurance. The strategy needed to “minimize the cost of such insurance for…the Department” and addressed five mandated criteria, to include consideration of having a single DBA insurance contract for the entire Department.

The Department performed extensive market research including a Federal Register Notice for industry input and an internal DoD data call for information on DBA rates paid in the open market on DoD contracts. Based on that research, the Department determined that the current open market (weighted-average) rate for DBA insurance was substantially lower than the single-provider rate available under its “pilot” program with the Army. Nevertheless, several improvements to the existing open market approach were identified. In addition, the Department determined that government-wide self-insurance for DBA coverage has the potential for future savings. The 66 page report issued to Congress in September 2009 can be obtained from the link at the right above.

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