Group Life Insurers In A Bind
Hopes Pinned On TRIA
To End Reinsurance Scarcity
By Jim Connolly
Driven by tight availability and big ticket costs for reinsurance and the potential for huge losses that a major terrorist event would bring, group life insurers are urging Congress to pass legislation that would provide a financial safety backup if a major terrorist strike hits the United States.
At press time, the situation is very fluid, with several pieces of legislation introduced that would include group life insurance in an extension of the Terrorism Risk Insurance Act. Passage of a TRIA extension is, in and of itself, uncertain. And, the window of opportunity is getting smaller, with a summer recess and fall campaign obligations whittling away the time to get legislation passed.
Frank Keating, president of the American Council of Life Insurers, Washington, spoke with National Underwriter of the need to get a safety net in place.
The interview with Keating was conducted even as Tom Ridge, Secretary of the U.S. Department of Homeland Security, was issuing a statement warning of “credible reporting” that al-Qaida could carry out “a large-scale attack in an effort to disrupt the democratic process.”
Keating asserts that because group life insurance involves concentrations of risk, it is important that Congress include it in legislation. “We are not asking for corporate welfare but for help in the event of a calamitous loss.”
The definition of calamitous is still being discussed, according to Keating. However, he emphasizes that “it should be an enormous and not simply a regrettable calamity.”
However, the Consumer Federation of America, Washington, recently argued that any extension of TRIA should be postponed until the Treasury Department concludes a mandated study next year on how well the law is actually working. It argued that an unnecessary extension could force taxpayers to pay for terrorism losses that the insurance industry could otherwise afford.
Further, Robert Hunter, CFAs director of insurance, says that “in a bait and switch maneuver,” what was “sold” as a temporary fix is now advocated as a program that needs to be extended.
Representatives in the insurance industry see the situation differently. Interviews offered a thumbnail sketch of an industry in which: a difference in a penny per thousand of insurance can make the difference between winning a group life contract with an employer; reinsurers assume business from direct writers as a service to accommodate established business relationships; and, a typical reinsurance arrangement includes a $20 million deductible and $20 million of reinsurance.
Those interviewed say a major terrorist event could “financially shred” the current system.
Group life is important to the average American and reinsurance is vital to group life, says Edwin Harper, senior vice president, Assurant Inc., Washington, and a leader in a group life coalition that is arguing for the inclusion of group life in TRIA.
Without reinsurance, the economic model for group life does not work, he says, and since 9-11, reinsurance has been scarce and expensive.
It is a public policy issue, he argues, because group life is the only life insurance policy many workers own and it is affordable because it is part of a compensation package provided by employers.
LIMRA International, Hartford, Conn., says in its “2003 U.S. Group Life Insurance” report that on average, each group contract contained 204 certificates in 2003. Term coverage averaged $50,000 per certificate and permanent insurance, $114,000.
With the potential for terrorist attacks involving huge loss of life, group life insurers could be forced out of business, Harper says.