NU Online News Service, April 28, 2004, 5:40 p.m. EDT, Washington – The Terrorism Risk Insurance Act should include group life insurance, a senior member of the House Financial Services Committee says.[@@]
“Group life insurance has characteristics similar to commercial property-casualty insurance in that there is excessive concentration of risks,” says Rep. Paul Kanjorski, D-Pa., who spoke during a committee hearing.
Group life insurers have remained in the marketplace despite a lack of reinsurance, and this has caused a significant amount of anxiety both in the life insurance industry and among people who obtain their life insurance coverage through their employers, Kanjorski says.
New York Insurance Superintendent Greg Serio agrees. In testimony before the committee he says that a Treasury Department decision in August 2003 against extending TRIA to group life insurance has left a “wide gap.”
Even the Treasury secretary acknowledged at the time he made the decision that there was a general lack of catastrophic reinsurance coverage for group life insurers, Serio says.
This lack of reinsurance continues to this day, and, without reinsurance, insurance companies will find it increasingly difficult to assume terrorism risk on their own, Serio says.
Congress, Serio says, needs to seriously consider inclusion of group life insurance policies under TRIA in any discussions surrounding TRIA’s reauthorization.
Wayne A. Abernathy, assistant Treasury secretary for financial institutions, says the decision to exclude group life was based on the statute.
Abernathy says the Treasury Department was required to make 2 inquiries. One was whether private reinsurance was available. The department’s study showed that reinsurance had receded.
However, the second inquiry looked at whether primary coverage had receded, and the Treasury Department found that primary coverage had not receded significantly.
As a result, Abernathy says, the group life market failed to qualify for inclusion in TRIA.
“Our hands were tied,” Abernathy says.
Meanwhile, a coalition of insurance and business groups has launched a major lobbying effort to include group life in any TRIA reauthorization.
The American Council of Life Insurers, the Financial Services Roundtable and the Group Life Coalition, an organization that represents insurance companies that write group life, are running advertisements in Capitol Hill newspapers calling for inclusion of group life.
In addition, the groups sent a letter to House Financial Services Committee Chairman Mike Oxley, R-Ohio, stating that failing to include group life in TRIA could affect the solvency of primary insurers in the event of a terrorist attack.
Phil Anderson, a lobbyist who represents the Group Life Coalition, says the Treasury Department’s 2003 determination that group life not be covered by TRIA is not well-documented.
Rather than presenting a body of work, he says, the department did little more than issue a press release saying that it was not ready to include group life under TRIA.
He says his members would like to gain a fuller understanding of why the line was not included.
In fact, Anderson says, there has been a deterioration in the market for a valuable employee benefit that many people take for granted.
Moreover, he says, insurance companies find themselves on the horns of a dilemma. State insurance departments are not allowing insurers to write exclusions for terrorism-related losses, but catastrophe reinsurance is not available, Anderson says.
In their letter to Oxley, the groups says that barring a catastrophic event, including group life in TRIA does not increase the total financial exposure of the Treasury to new costs.
“If there is a terrorist attack, the federal government’s cost would be defined and limited, solvency and claims concerns would disappear and the administration would have acted decisively during the highest threat level in our nation’s history,” the letter says.
The hearing focused on whether the TRIA program should be extended. TRIA was enacted in the wake of the Sept. 11, 2001, terrorist attack with the goal of providing a financial backstop to insurers that experience substantial losses due to a terrorist attack.
The program covers commercial property-casualty risks, but it gave the Treasury Secretary authority to decide whether to include group life in the program based on the results of a study.
TRIA works on a quota share basis. It is triggered by a terrorist attack in which total damages exceed $5 million. The first portion of losses is paid entirely by private insurance companies.
Private insurers are entirely responsible for losses up to 10% of their direct earned premium for events occurring in 2004 and 15% for events occurring in 2005.
Above those amounts, the government pays 90% of the remaining losses up to a cap of $100 billion.
TRIA covers only commercial property-casualty policies, because Treasury decided not to include group life in the program
TRIA is scheduled to sunset at the end of 2005. Treasury is required to produce a study by June 30, 2005, on the effectiveness of the program and on the capacity of the private market to offer terrorism insurance after termination of the program.
During the hearing, Financial Services Committee members raised questions about the timing and whether Congress would be able to enact legislation in time to avoid market disruptions if it is determined that TRIA should be extended.
Rep. Richard Baker, R-La., says Congress should consider a temporary extension, of perhaps 1 or 2 years, so that markets will not be disrupted and Congress will have time to review the evidence.
He tried to pin Abernathy down on whether the Bush administration would support a temporary extension, but Abernathy says there is simply not sufficient data yet to make a determination.
Kanjorski says he believes bipartisan support exists in Congress right now for an extension. He adds that while he would prefer the extension to include group life, he would support a straight extension of the existing program if that is necessary to avoid market disruptions.