Group Life Market Is Feeling Reinsurance Pinch After 9-11

By

Washington

The group life market is experiencing some of the same problems acquiring adequate reinsurance for losses caused by terrorism as the property-casualty market, say two life insurance industry executives.

“Since just before Christmas, we have been able to purchase only small amounts of reinsurance at very high prices,” says Donna Mundy, senior vice president of government affairs for UNUM/Provident Life.

Her company, she says, has been able to acquire only about 10% of what it wants to have and at a 1,000% increase in cost.

Moreover, Mundy says, the reinsurance policies contain new exclusions for losses caused by nuclear, chemical or biological attacks.

Mundy spoke at a recent National Association of Insurance Commissioners hearing in Washington on the status of the terrorism reinsurance market in the wake of the Sept. 11 attack.

Mark Andruss, vice president of corporate development for Fortis Insurance, says that since Sept. 11, Fortis has been able to obtain excess reinsurance that provides coverage for acts of terrorism.

However, he says, his company cannot get at any price catastrophic coverage involving many people dying in a single event.

Fortis is exploring alternatives, Andruss says, but anything available will likely have significant limitations and will place the company at risk if other reinsurance proves inadequate.

Mundy says that any reinsurance available is very expensive and thus makes it more difficult for employers to afford group life.

Noting that there is no statutory requirement for employers to provide group life, Mundy says there is a limit to the ability of employers to absorb these costs.

Employers, she says, can only take so much of an increase before they will shut down the benefit.

If there were a federal backstop for terrorism losses affecting group life, Mundy says, it should be possible to price the coverage closer to what existed before Sept. 11.

Andruss adds that without either a federal backstop or the ability to exclude losses from terrorist attacks, Fortis might have to exit the group life business.

He says a company that insured Cantor Fitzgerald, a company that lost a substantial number of employees in the Sept. 11 attack on the World Trade Center, would be facing a substantial stress on its capital.

Had Fortis been the insurer, and in the absense of catastrophe reinsurance coverage, its capital would have been wiped out, he says.

Fortis, he says, must protect the capital of the people who make investments in the company.

Moreover, Andruss says, even though the NAIC has taken a public position supporting terrorism exclusions, some states are rejecting them.

NAIC, Andruss says, should advise members to allow the filing of exclusions.

If a federal program is developed, or if reinsurance again becomes available, he hopes the group life market can return to normalcy. But it will be increasingly hard to provide group life coverage if there are different provisions between group life policies and reinsurance policies, he adds.

In other news, the American Council of Life Insurers is questioning a policy change by a leading property-casualty agent groupthe Independent Insurance Agents of Americato support federal legislation aimed at streamlining state insurance regulation, but to continue to oppose optional federal chartering.

“We were surprised to see a proposal that on its face seems to have a much heavier federal hand in what is currently a state prerogative than any of the optional federal chartering proposals on the table,” says Allen Caskie, ACLIs chief counsel for federal relations.

The comments came in reaction to a decision by the IIAA board to use “federal tools” to try to bring about regulatory modernization.

Among the tools IIAA supports are federal minimum standards for state regulation, national reciprocity, multistate uniformity and preemption of certain state laws.

The goal, according to IIAAs CEO Robert A. Rusbuldt, is to improve insurance regulation without adopting the more “radical” proposals currently on the table calling for optional federal chartering.

But Caskie questions the IIAA approach.

If IIAA is proposing preemptive federal statutes, Caskie says, it will apply to all companies and limit the activities of all states.

However, he says, if the federal standard is not preemptive, IIAA would simply be creating a federal model law that would be similar to what exists today from the NAIC.

That model law, Caskie says, would have the same drawback as the NAIC model law in that states would be able to make individual changes that would undermine the entire uniformity objective.

Rusbuldt counters that IIAAs approach would preserve state regulation while avoiding the pitfalls of optional federal chartering.

Any bill enacted by Congress, Rusbuldt insists, will look much different from the proposals drafted by the industry. There could be a host of new requirements imposed on insurers, he says, including community reinvestment.

And there is no guarantee, Rusbuldt says, that these requirements will only apply to federally chartered insurers and Congress could easily apply them across-the-board.


Reproduced from National Underwriter Life & Health/Financial Services Edition, January 28, 2002. Copyright 2002 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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