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Life Health > Life Insurance

"What Ifs?" Plan Idea Sparks Debate

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Although most of the attention on the issue of a federal role in terrorism insurance is focused on the property-casualty industry, the life insurance industry is coming under some scrutiny as well.

At issue is the proposal by the American Council of Life Insurers, Washington, to establish a federal commission to examine possible scenarios that could lead the life insurance industry to seek assistance from the federal government.

Jacques E. DuBois, a member of the executive board of Swiss Re, told a recent meeting of the National Association of Insurance Commissioners, that while the life insurance losses arising from the Sept. 11 terrorist attacks are a small fraction of those experienced by p-c insurers, life insurers are nonetheless at risk.

There are concerns, he says, that certain types of terrorist attacks could lead to a substantial loss of life with relatively little property damage.

That, DuBois says, is why ACLI is requesting that Congress create a commission to study the possibilities.

If anything, DuBois says, the life insurance industry has not been moving with the appropriate speed on this issue.

The industry, he says, has been slow getting to the table.

Swiss Re, DuBois says, strongly supports including the commission plan in any terrorism insurance legislation that moves through Congress.

But J. Robert Hunter, director of insurance for the Consumer Federation of America, criticizes the commission proposal, calling it a “misuse” of the commission process.

If ACLI has a proposal for a federal role in financing terrorism-related losses for life insurers, it should put it on the table and let people take shots at it.

Gary Hughes, senior vice president with ACLI, responds that it is “nonsensical” to suggest that the ACLI proposal is an abuse of the commission process.

Congress, he says, commissions studies all the time on issues like this.

The life insurance industry, Hughes says, feels it needs a study. This is not window dressing, he adds.

Any study could very well conclude that any federal role in life insurance is inappropriate, he says.

But Hughes says that before any conclusion can be reached, a study needs to be done on whether some type of government mechanism involving life insurance is necessary, and if so, what that mechanism should be.

A lot of ideas are floating around, he notes, and a lot of people in the industry view the situation seriously. But there are a lot of unknowns, Hughes says.

The life insurance industry, he says, can do its own study of the industrys capital and surplus. But the real question, he says, is what is the likelihood of a major event happening.

“Nobody knows how to assess the risk,” Hughes says.

“What better circumstances are there for a study?” he asks.

At press time, Congress was holding a series of hearings on terrorism insurance proposals.

Because property reinsurance policies that are scheduled to be renewed on Jan. 1 will likely carry terrorism exclusions without federal government action, the expectation was that Congress would try to move a bill quickly, even if it is just an interim measure.

In other news, Senate Finance Committee Chairman Max Baucus, D-Mont., released his version of an economic stimulus package, a package that is far less extensive than the House version.

In particular, the Baucus plan calls for a one-year extension of the current tax treatment of investment income earned by foreign subsidiaries of U.S. financial services firms.

By contrast, the House bill calls for a permanent extension.

Under the current treatment, this income is not subject to U.S. tax until the parent receives it. But this treatment is set to expire on Dec. 31.

If it does, the income will be immediately taxable when earned, even if the parent has not received it. ACLI and other financial services associations say this treatment harms the international competitiveness of U.S. financial services firms and are lobbying for a permanent extension.

ACLI Representative Jack Dolan says that life insurers prefer the House version. Life insurers, he says, need a permanent extension to provide confidence and assist in long-term planning.

He adds that ACLI will also work to include other life insurance-related provisions in the stimulus package.

These include repeal of Sections 809 and 815 of the tax code and an easing of the current rules on consolidated returns.

Finally, the National Association of Insurance and Financial Advisors, Falls Church, Va., decided not to participate in a possible lawsuit against the Comptroller of the Currency, who recently issued an opinion that four sections of a West Virginia law regulating bank insurance activities should be preempted under the Gramm-Leach-Bliley Financial Modernization Act.

David Winston, vice president of government affairs with NAIFA, says that the board made this decision because GLB contains very significant consumer protections as well as 13 safe harbors that protect state laws regulating bank insurance activities.

The GLB provisions, Winston says, have created a level playing field for insurance agents and banks and protections for consumers.

The Alexandria, Va.-based Independent Insurance Agents of America is considering a challenge to the OCCs determination.

Reproduced from National Underwriter Life & Health/Financial Services Edition, October 29, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.

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