House Provision For Study Of Life Industry Backup Needs Tweaking
The House Financial Services Committee acted wisely by including a provision in the Terrorism Risk Protection Act calling for a study of the circumstances in which the life insurance industry might need federal assistance following a terrorist attack.
The committee also deserves kudos for including an agent representative as part of the commission that will conduct the study.
The terrorist tragedy of Sept. 11, and the unexpected loss of some 5,000 lives, forced the insurance industry to confront an unprecedented situation.
There is widespread agreement that no one could have anticipated the extraordinary circumstances that led to the tragedy, nor adequately prepared for the subsequent economic fallout.
Indeed, the property-casualty side of the business now faces an emergency situation that necessitates government action. Without a federal backstop, terrorism risks on the p-c side might go uninsured.
The situation arising out of Sept. 11 is not nearly as dire on the life insurance side, which is why a study now is a good idea. It is conceivable that a future attack would take the form of biological terrorism, which could have a tremendously greater impact on the life insurance industry than did the attacks of Sept. 11.
Not only will the study help to identify those circumstances in which federal assistance might be necessary, it will hopefully identify a mechanism for doing so that can be implemented quickly and smoothly on an emergency basis.
That is why it is also a good idea to include an insurance agent representative on the commission.
While insurance agents are not involved in insurance company solvency matters, they will be the vital link between insurers and policyholders should federal assistance be necessary.
If a tragedy occurs, the first people that policyholders and beneficiaries will contact regarding the status of their policies will be their agents.
As the primary link between companies and policyholders, it is important that agents be involved in this process from the outset.
Where we disagree with the Financial Services Committee is its decision to limit the commission to only five members.
The members include one representative each from the federal government, the National Association of Insurance Commssioners, a primary company, a reinsurance company and an agent.
In its original proposal, the American Council of Life Insurers suggested a nine-member commission, with the expectation that one member would represent the Federal Reserve Board.
We still think this is a good idea and would like to see the commission expanded to include the Fed and perhaps a consumer representative.
While expanding the commission may make it more difficult to reach a consensus, it is a fact of life that any proposal will ultimately be vetted by Congress, where a broad coalition will be necessary if legislation is to be enacted.
Establishing a study commission is a good idea. But it is a good idea that can be made even better by expanding its membership.
Reproduced from National Underwriter Life & Health/Financial Services Edition, November 19, 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.