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Until reinsurers get a better handle on new risks in offering catastrophe reinsurance coverage for group life insurance, they say carriers can expect steep prices when they can get it.
For producers selling group life and health benefits, this new market reality will make it necessary to explain to business clients why premiums are skyrocketing.
In a post 9/11 world, the situation with life reinsurance–traditionally more stable than property-casualty reinsurance–is at least temporarily topsy-turvy.
Carriers and their producers are left with the prospect of a significantly more expensive product, reinsurers are sorting out ways to handle risks that were unfathomable less than a year ago, and regulators and legislators are trying to play referee between squeezed consumers and a hard-pressed industry.
Just last month, reinsurance and terrorism led the topics discussed during the spring meeting of the National Association of Insurance Commissioners in Reno, Nev. Speakers emphasized the dearth of reinsurance available for group life insurance and said that failure to enact federal backstop legislation or another remedy would result in the loss of affordable group life insurance for the average American.
Reinsurers say that until they have more information, catastrophe reinsurance, the focal point of the debate on group life terrorism exclusions, will be scarce and expensive when it can be had. Increases cited range from 300%-1400%.
A distinction needs to be made between traditional group life reinsurance and group life catastrophe reinsurance, says Chris Stroup, CEO of Swiss Re Life & Health America, New York.
Traditional group life reinsurance is "vibrant," but on the catastrophe reinsurance side, where the demand is, there will be less availability until more detail on underlying exposures can be determined, he adds.
In the traditional market, there is availability because typically, not much group life is reinsured, Stroup says.
In 2000, $20 billion of $921 billion of group life insurance face amount, approximately 2%, was reinsured, he says.
This compares with $985 billion of $1.6 trillion in face amount for individual life insurance, or 62%, he adds.
So, typically there is not much traditional group business ceded to reinsurers and consequently, there is capacity, Stroup says.
"Change in risk management behavior is the fundamental issue," he adds. Necessary data to assess risk could be culled and made available in a relatively short time, Stroup says.
"From a life reinsurance viewpoint, we are much more aware of concentration of risk issues," says Jim Senn, president-individual life and health with ING Re, Denver.
This is particularly true of corporate-owned life insurance and key person insurance business, according to Senn.
For instance, the amount of COLI business in a particular transaction may get more scrutiny, he says.
This would include more questions about concentration of workers at company sites, whether those sites are high-rise or low-rise buildings and where those sites are located, Senn adds.
The emphasis on concentration issues that life reinsurance is now receiving is traditionally more indicative of property-casualty reinsurance, Senn continues. P-C reinsurers are used to concentration risk from hurricanes and earthquakes, he says.
Concentration of risk has always been a concern, "it is just more in the front and center," according to Senn.