Push To Expand Terrorism Act To Include Group Life
The Terrorism Risk Insurance Act should be expanded to include group life insurance, says a senior member of the House Financial Services Committee.
“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 hearing.
Group life insurers have remained in the marketplace, he says, 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.
New York Insurance Superintendent Greg Serio agrees. In testimony before the committee he said 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 this decision that there was a general lack of catastrophic reinsurance coverage for group life insurers, Serio says, and this lack of reinsurance continues today. Without reinsurance, insurers will find it increasingly difficult to assume this risk on their own.
Congress, Serio says, needs to consider seriously inclusion of group life policies under TRIA in any discussions about its reauthorization.
Wayne A. Abernathy, Assistant Treasury Secretary for Financial Institutions, says the decision to exclude group life was based on provisions in the statute where Treasury was required to make two inquiries. One, he says, was whether private reinsurance was available, and here, Treasurys study showed it had receded.
However, the second inquiry was whether primary coverage had receded and Treasury found that it had not significantly.
As a result, he says, the test of whether to extend TRIA to group life was not met. “Our hands were tied,” Abernathy says.
Meanwhile, an organization 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, which represents insurers that offer group life, are running advertisements in Capitol Hill newspapers calling for inclusion of group life.
In addition, they 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 Treasurys 2003 determination that group life not be covered by TRIA is not well documented. Rather than presenting a body of work, he says, Treasury did little more than issue a press release saying 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, insurers 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, he says.
In their letter to Oxley, the groups say 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 governments 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 nations 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 and casualty risks, but it gave the Treasury Secretary authority 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, who are entirely responsible for losses up to 10% of their direct earned premium for events occurring in 2004 and 15% for events in 2005. Above those amounts, the government pays 90% of remaining losses to a cap of $100 billion.
TRIA covers only commercial property and casualty coverage, since 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.
But during the hearing, 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 one or two 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 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.
Reproduced from National Underwriter Edition, April 30, 2004. Copyright 2004 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.