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Life Health > Life Insurance

Witnesses Clash On Group Life Terrorism Protection

By Arthur D. Postal, Matt Brady

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Opposition to including group life in an expanded federal terrorism reinsurance program surfaced today at a Senate Banking Committee hearing on renewal of the Terrorism Risk Insurance Act.[@@]

Howard Mills, acting New York insurance superintendent, spoke in favor of renewing TRIA and adding group life to the TRIA program.

“We do support the inclusion of group life,” Mills said in his capacity as a New York insurance regulator. He noted such factors as the high concentration of workers in New York City as reasons for concern about group life terrorism risk.

But Mills also appeared on behalf of the National Association of Insurance Commissioners, Kansas City, Mo., and he reported that the NAIC has not taken an official position on adding group life to TRIA.

Robert Hunter, director for the Consumer of America, said he opposes the idea of renewing TRIA, and he also rejected calls for extending the program to include group life insurance.

Hunter referred to TRIA property-casualty reinsurance as “free reinsurance.”

“I don’t think the taxpayers should have to shoulder that,” Hunter said.

In response to the debate about whether or not to include group life in an expanded TRIA program, Hunter said, “The Treasury Department wisely decided not. I think you should ask them why, and I think I know why. It’s not necessary.”

TRIA was enacted in November 2002 and expires Dec. 31.

S. 467, a bill introduced several months ago by Sens. Robert Bennett, R-Utah, and Christopher Dodd, D-Conn., would extend TRIA for 2 years while Congress makes a permanent decision about who should pay for damage caused by terrorist attacks.

TRIA renewal efforts are on hold on Capitol Hill because the existing law requires the Treasury Department to report to Congress on the effectiveness of the terrorism reinsurance program by June 30.

“We will suffer significant economic loss if the program is not renewed,” said Sen. Charles Schumer, D-N.Y., who opened the hearing.

Many new construction projects are already on hold because provisions in current insurance policies say coverage for terrorism risk will expire Dec. 31, regardless of the policy termination date, when the TRIA reinsurance program expires, Schumer said.

Like Schumer, Dodd rejected the idea that private industry should bear full responsibility for solving the terrorism risk problem.

“If there were a private sector solution to this problem, we wouldn’t be here,” Dodd said. “We need a hybrid to get this right.”

Douglas Holtz-Eakin, director of the Congressional Budget Office, a bipartisan arm of Congress, said TRIA has succeeded at expanding the supply of terrorism insurance.

As a result, “TRIA has led to an increase in the percentage of companies that buy terrorism coverage,” Holtz-Eakin said. “It has also given private insurers time to raise financial capital, improve their models of risk, and re-enter the market.”

But Holtz-Eakin also has argued that TRIA has reduced the financial incentive for owners of major commercial buildings to make efforts to address the threat of terrorism.

Mills, New York’s acting insurance superintendent, rejected Holtz-Eakin’s argument that TRIA lowers property owners’ incentive to address terrorism safety concerns.

There is “little evidence” to show that, Mills said.

“TRIA has been successful,” Mills said. “TRIA has operated exactly as the Congress intended it.”

Mills noted that insurers already have made conditional filings in several states to exclude terrorism coverage if TRIA expires. “I believe these filings show that the insurance industry is not yet willing to assume the full risk of terrorism coverage at this time,” Mills testified.

Speaking on behalf of the insurance industry, Brian Duperreault, chairman of ACE Ltd., Hamilton, Bermuda, and as spokesman for the American Insurance Association, also urged Congress to renew TRIA.

“There are those who suggest that TRIA should be allowed to expire and that the ?free market’ should respond to fill the need for terrorism insurance,” Duperreault said. “However, property-casualty insurers do not operate in a free market environment.”

Most states prohibit p-c insurers from excluding terrorism coverage from certain commercial insurance products, such as workers’ compensation products, and most states also impose restrictions on rates and efforts to limit terrorism coverage levels, Duperreault said.

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