Insurers Assess Readiness In Wake Of London Bombings

Life insurers say that the terrorist bombings in London on July 7 that killed at least 53 people and wounded approximately 700 point to the need for both a government backstop for group life insurance and effective risk management among insurers.

The American Council of Life Insurers, Washington, responded to the terrorist event by expressing condolences to those affected and reiterating a statement issued by Frank Keating, ACLI’s president, in support of inclusion of group life insurance in an extension of the Terrorism Risk Insurance Act now in Congress. TRIA expires on Dec. 31.

Treasury Secretary John Snow indicated in a letter to Congress that continuation of the program could contribute to a “crowding out” of “innovation and capacity building” in the private market (see NU, July 4/11).

In his statement Keating says: “Unlike the property and casualty industry, in the absence of TRIA, group life insurers are required by state law to offer terrorism coverage if they offer the product. As a result, group life insurers have been making changes to mitigate factors within their control. They are adjusting underwriting factors and working to control risk concentrations.

“However, despite these efforts, terrorism is and will remain an event that cannot be predicted with any degree of certainty, frequency or severity,” he says.

“We encourage Congress to move with all speed and alacrity to get TRIA extended. Nothing is more illustrative of the importance of this than the events of today,” says Andy Barbour, vice president of insurance, technology and international affairs with the Financial Services Roundtable, Washington.

Barbour notes that there are two bills currently under consideration that include group life insurance in TRIA: HB 1153 and SB 467. He says that the bills have a respective 24 and 30 co-sponsors. How far along these bills progress is not totally clear, but Barbour says that he is confident group life will be included in TRIA either through those bills or in a different bill or formulation.

The need for including group life is important, Barbour continues, because making sure that lives are insured is as important as making sure that businesses have business insurance.

“There is a need for more awareness [to diversify business geographically], but I don’t know if we are fully there yet,” says Erik Rasmussen, vice president of risk management with ING RE, Minneapolis. While companies are more aware of the need, Rasmussen notes that there is also “a need to feed top lines” and top producers may not be willing to limit business that they write. “It is driven by what salespeople are doing,” he continues. And, if other carriers are not asking for such information, it may make it difficult for a carrier to ask an employer for information on employee concentration, Rasmussen adds.

Still, Rasmussen says, many companies are doing a better job of determining where employer exposure lies. “People are beginning to collect data and look at it.”

Data needs to look at geographic concentration not only by ZIP code but also by street, says Rasmussen.

In the London bombing and in any potential transportation attack, Rasmussen says that it becomes more difficult to assess exposure. In such cases, a direct writer would need to reverse engineer, using Census Bureau data on commuting patterns to determine the extent of exposure, Rasmussen says. “The best you can do is to get a general pattern,” he adds.

Approximately 65-80% of the group life volume in ING Re’s database is defined down to the street level, according to Scott Machut, ING Re’s vice president-life, accident and specialty reinsurance.

Such risk concentration data is of limited use in a mass transit event, but “if the attack were in a building and not in the subway, the risk concentration information would be a big advantage for the insurance company.”