9-11 Casts A Shadow Over Group Life
There has been little change in the way life reinsurers are marketing, underwriting and pricing group life reinsurance following the September 11 terrorist attacks.
Even so, significant changes are afoot for primary group life insurers, especially in managing their net retained exposure. How and whether agents, brokers, and customers will be affected is yet to be seen. For now, the business is assessing its strategies in a world of new uncertainties.
Several factors are contributing to the “no-change” aspect of the situation in todays group life reinsurance market. These include continued favorable mortality trends, healthy competition nationwide–and the fact that much of the group life reinsurance market has had relatively low losses from the attacks.
Given all of the reports that have come out concerning the huge losses caused by September 11, you may well be wondering: How can those things be?
The answer is: catastrophe reinsurance.
The companies that bore the brunt of the individual and group life claims stemming from September 11 were the providers of catastrophe coverage that protected the net retentions of the insurance companies. As a result, the group marketplace has seen little change in the excess per life reinsurance arena to date, and almost no impact on the price or availability of group life products.
Group life reinsurers realize, if they exclude terrorism or raise prices now, they will either not be a viable market or they will be uncompetitive. With few September 11 losses, excess life reinsurers cannot go to their clients with price increases based solely on “what could happen next time.”
However, as suggested earlier, there is more to the group life story. In the aftermath of September 11, the catastrophe coverage that shielded group policies back then has diminished. This coverage has also become much more expensive. Prices for accident and health catastrophe coverage have soared, in some instances to 20 times last years costs, and A&H market catastrophe capacity is sharply down, from $1 billion to $150 million.
In addition, no state has approved terrorism exclusions for group life or disability coverage comparable to those implemented for commercial property risks.
As a result, insurers are now seeking new answers, and posing new questions, about their net retained exposures.