Industry Needs To Unify On Federal Backstop For Group Life
Time is running short in the 107th Congress and it is high time for the life insurance industry to unite behind the effort to include group life insurance as one of the coverages qualifying for federal assistance in the event of major losses caused by terrorism.
The need is clear. Article after article in National Underwriter has documented the fact that catastrophe reinsurance coverage for group life is very scarce, and where available, very expensive.
Acts of terrorism undermine the basis on which group life is underwritten. Life insurers underwrite group life based on mortality tables that have withstood the test of time.
Life insurers can predict with great precision the number of deaths that will occur under normal circumstances and they price the product accordingly.
But an act of terrorism that causes massive, and unpredicted, loss of life at a single workplace shreds the underpinnings of group life underwriting.
When a risk becomes unpredictable, it becomes uninsurable. Thus, without a reinsurer of last resort for losses caused by terrorism, the entire group life industry, which provides a highly-valued employee benefit, is threatened.
Unfortunately, the life insurance industry appears divided on this issue. Some life insurers, it is reported, have managed to cobble together private group life reinsurance programs.
They reportedly oppose including group life in the terrorism insurance bills currently pending before Congress because they believe they have a competitive advantage.
This is, at best, short-sighted thinking. Even if a group life insurer has managed to put together a reinsurance program today, are there any guarantees that it will be there tomorrow, particularly if the nation suffers through another terrorist attack?
There simply has to be a reinsurer of last resort for this type of risk, and only the federal government has the ability to assume that role.
A unified effort is needed to get group life included in the legislation. The House and Senate are currently engaged in negotiations trying to develop a consensus bill.
Unfortunately, group life insurance is not mentioned in either the House bill, H.R. 3210, or the Senate bill, S. 2600.
This means the industry will have to convince the House and Senate negotiators to include a risk in the final bill that was not subject to a vote in either chamber. This is a very tall order.
Powerful forces in Congress want as modest a bill as possible. Disunity in the life insurance industry will serve as a convenient excuse for them to keep group life out of the final legislation.
The property-casualty industry, despite its great diversity in terms of size and market objectives, has managed to put aside its parochial differences and work together on a bill it believes is vital to the future of the industry.
The life insurance industry needs to do the same if there is any hope of including group life in the terrorism insurance bill.
Reproduced from National Underwriter Life & Health/Financial Services Edition, September 23, 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.