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.”
While the benefits of risk concentration data for group insurers are limited in a subway attack, the important thing, according to Machut, is the awareness among individual direct writers as to how risk concentration can affect them. “This is more of an eye-opener for individual life companies than for group life companies,” says Machut.
Standard & Poor’s Corp. looks at risk concentration as one of a number of factors used to determine ratings, says Rodney Clark, S&P director of financial services ratings, New York. S&P does look at how many employers are concentrated in any one area, he adds.
In particular, it is a factor with insurers who write group life insurance, he adds. Unlike property-casualty insurers, which have “increasingly well-developed” models to measure catastrophic events, including terrorism, there are not as well-developed systems among life insurers, Clark adds.
Another factor is what kind of catastrophe coverage is in place, he continues. Clark notes that cat coverage became very expensive after the attacks on the World Trade Center towers on Sept. 11, 2001.
However, Clark notes that with the London bombings, it was a difficult risk to assess because the risk was not focused on where employees worked but how they got to work.
Doug Meyer, a senior director with Fitch Ratings, Chicago, says that the exposure is primarily for group life insurers.
But, he notes that many have reinsurance in place to cover events such as the attacks on the World Trade Center or in the London bombings. Most of the major players have some reinsurance in place, he adds.
For life insurers who have health insurance operations or for health insurers, there also could be cat risk, he adds. This is particularly true of regional health insurers such as Blue Cross/Blue Shield plans, Meyer adds.
But, it is still a relatively small issue for life insurers as a whole and a bigger issue for property-casualty exposure, Meyer continues.
At press time, several companies had not responded to a request for comment from National Underwriter.
But, William Werfelman, a New York Life spokesman, says that while younger and smaller companies might have greater concentration risk, larger, diversified companies including New York Life would have less risk. New York Life is in the top 10 U.S. markets and in all states but also has nearly a quarter of its life insurance sales from its international operations, he adds.
‘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’
‘This is more of an eye-opener for individual life companies than for group life companies’