Treasury Seeks Information On Group Life Market For Terrorism Re Program

By

Washington

The Treasury Department is seeking detailed information on the marketplace for group life insurance for its determination on whether group life should be included in the recently enacted federal terrorism reinsurance program.

Treasury Under Secretary Peter R. Fisher notes that the terrorism insurance legislation requires Treasury to prepare, on an expedited basis, a study on the impact of terrorism risk on group life insurers and on the availability of group life coverage.

Toward that end, he says, Treasury is seeking public comments on the issue.

The request for comments, which Fisher says will be published shortly in the Federal Register, seeks input on who are the buyers and sellers of group life insurance and how they are brought together.

The request asks how the group life market is regulated in the U.S. and whether there are significant differences among the states.

It also seeks input on risk exposures of policyholders, including the degree of concentration both by locality and type of employer.

In addition, the request asks for details on the availability and price of group life reinsurance both before the Sept. 11 terrorist attack and after. Treasury is asking for specifics on the type and amount of coverage available, deductibles, sublimits and renewability.

Treasury is also seeking input on current capacity and the availability of alternate sources of reinsurance, such as through capital markets.

In particular, Treasury wants empirical support for whether group life insurers have reasonable access to adequate and affordable catastrophe reinsurance, and if not, why inclusion in the program would correct the situation.

Respondents, Treasury adds, should compare the magnitude and scope of the group life situation to that which confronted property-casualty insurers.

Finally, Treasury says, if it is appropriate to include group life under the program, the presumption is that the current provisions of the legislation would apply.

But if these provisions are not applicable, Treasury says, respondents should provide a detailed explanation of the changes that would be needed to implement the program for group life.

Comments are due to Treasury 30 days after the request is published in the Federal Register.

Regarding the Treasury Department, a long-time fixture in the life insurance industry has joined the department to work on the terrorism insurance issue and optional federal chartering.

S. Roy Woodall, who served for many years as president of the National Association of Life Companies, and most recently was with Congressional Research Service, is now with Treasury.

NALC merged with the American Council of Life Insurers several years ago.

In other news, the United States Supreme Court will hear oral arguments this week in a case that tort reform advocates hope will begin reining in large punitive damage awards.

The case, State Farm v. Campbell, involves a $145 million punitive damage award assessed against the Bloomington, Ill.-based company for alleged bad faith claim handling and intentional infliction of emotional distress.

Victoria Fimea, an attorney with the American Council of Life Insurers, Washington, notes that the high court has spoken in the past about constitutional due process limits on punitive damage awards, but it has not given any other guidance.

The State Farm case, Fimea says, gives the court an opportunity to provide further guidelines.

Mark Behrens, a tort law expert in the Washington office of Shook, Hardy & Bacon, adds that the State Farm case allows the Supreme Court to address the issue of punitive damages from a different angle than in the past.

He notes that in one case, BMW v. Gore, the court announced a three-part test for determining the constitutionality of punitive damages. However, Behrens notes, lower courts have applied the test in a way that actually upholds large awards.

But in the State Farm case, he says, the size of the award was determined partly because the trial court allowed the plaintiff to present evidence of alleged bad conduct that was not directly related to the plaintiffs claims.

The evidence involved situations occurring in other states and other lines of insurance that had little or no connection to the plaintiffs complaint, Behrens says.

During the trial, the court allowed the plaintiff to present evidence that the company was involved in a “national scheme” designed to meet corporate fiscal goals by limiting payouts.

The jury awarded the plaintiff $2.6 million in compensatory damages and $145 million in punitive damages.

The high court could begin placing restraints on punitive damage awards, Behrens says, by limiting the type of evidence, both in terms of the nature of the evidence and its geography, that can be presented in these cases.

The oral argument before the Supreme Court is scheduled for Dec. 11.


Reproduced from National Underwriter Life & Health/Financial Services Edition, December 8, 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.