The group life insurance industry “strongly urged” Congress to include group life in any successor to the Terrorism Risk Insurance Act.
Group life coverage was not included in the original bill, passed in late 2002, and the Treasury Department declined an opportunity offered by a provision in the bill to add group life coverage, saying there was adequate availability of this coverage. But the life insurance industry is mounting an aggressive campaign to be included this time.
In comments at a hearing on the future of TRIA held by the Capital Markets Subcommittee of the House Financial Services Committee, Ed Harper, senior vice president of Assurant Inc., and chairman of the Group Life Coalition, said group life insurance represents approximately 42% of the U.S. life insurance market and provides financial security to 160 million Americans.
Meanwhile in the Senate, Sen. Chris Dodd, D-Conn., and Sen. Hillary Clinton, D-N.Y., held a press conference during which they called for a simple extension of the TRIA program through legislation that Dodd co-sponsored with Sen. Robert Bennett, R-Utah. That legislation also calls for inclusion of group life.
During the House hearing, Harper’s views were embraced by Ernst Csiszar, president and CEO of the Property Casualty Insurers Association of America, in his testimony. But J. Robert Hunter, director of insurance for the Consumer Federation of America, took the opposite approach, suggesting Congress should reject calls for adding group life to any successor program.
In his testimony, Harper said, “We strongly urge Congress expressly to include group life in any market-based successor to the TRIA program.”
At the conclusion of the first of two panels testifying on the issue, Rep. Mike Capuano, D-Mass., asked all witnesses if they had any opposition to the inclusion of group life in the TRIA program. None of them responded, which Capuano took to mean that they supported inclusion.
Capuano joined with fellow Democrats Rep. Barney Frank, Mass., and Rep. Steve Israel, N.Y., in introducing legislation extending the current TRIA program several months ago that incorporated a provision including group life.
“Quite simply, Congress needs to insure the people inside the buildings, too,” Harper said.
He explained that “in many cases, [group life] is the only life insurance most policyholders have to provide protection to their families. As such, the fate of group life insurance and TRIA is no trivial concern.”
Harper added that, going forward, the Group Life Coalition, which includes the American Council of Life Insurers, would support extending TRIA with group life for two years with upwardly adjusted triggers, retention levels and co-shares to provide catastrophic protection for the policyholders and the economy and to protect the taxpayer. “As the new program is ready to be engaged and begin functioning, the ‘old’ TRIA model should sunset,” Harper said.
In a theme brought up by several of those testifying at the hearing, Harper suggested that a long-term solution should include as a major component a government-mandated pooling of risk. “The government does not bear the risk or the costs” under this proposal, Harper said.
“Rather, it creates a new structure that materially increases the capacity of the industry to bear the risk. A government-mandated pooling structure would greatly increase the amount of risk that could be handled in this second layer. The costs and risks associated with this mandatory pooling would be largely borne by the group life insurers. It is estimated that with the right structure a terrorist event that produced 100,000 deaths could be handled without any government funds.”
In proposing a government-mandated pooling of risk, Harper was joined at the hearing by John Sinnott, vice chairman of Marsh & McLennan Companies Inc., who also represented the Council of Insurance Agents and Brokers, and Lawrence Mirel, Washington, D.C., insurance commissioner.
Noting that he was not speaking on behalf of the NAIC, Mirel called for creation of a pool-re mechanism similar to that used in Great Britain to protect against insolvency in the case of terrorism losses. Mirel’s proposal is for the government to back such a program in cases where the losses exceed the pool’s capacity.
Another theme of the hearing was that Democrats said time was of the essence since TRIA in its present form expires Dec. 31 and that the obvious short-term solution was to extend TRIA for two years and then work on a long-term program.
But the Republican leadership of the committee warned that such an approach would not work because it was unacceptable to the Bush administration, as stated in the Treasury report.
In his testimony, Csiszar said that “as with workers’ compensation, potential losses under group life insurance can be enormous, given the concentration of risk in some workplaces. Group life insurance products provide valuable protection to more than 150 million citizens and in many instances is their only life insurance.
“As we protect our nation’s assets we must not neglect protection of the economic security of its workers,” Csiszar said. “PCI, therefore, strongly supports the addition of group life coverage to the program.”
But CFA’s Hunter was just as insistent that such an inclusion was unnecessary. “There is no meaningful evidence that justifies expanding TRIA to cover group life insurance,” Hunter said. “The Treasury Department already has rejected the request to expand the current TRIA to include group life. That was the right decision. Even the National Association of Insurance Commissioners, a group well known to be very industry-friendly and particularly concerned about solvency and any possibility of undue risk, has refused to allow group life exclusions.”
Hunter added, “It is likely that a major reason that both the Treasury Department and NAIC have rejected the appeals of life insurers for relief is that these insurers have not attempted all meaningful measures to spread their risk privately.
“CFA has not received a single complaint from a consumer or business indicating that there is a problem in the life insurance market. Since there are no exclusions allowed by the NAIC, we would likely be hearing about rising costs if they were rising, but we are hearing no complaints at all.”
Sen. Chris Dodd, D-Conn., and Sen. Hillary Clinton, D-N.Y., called for a simple extension of the TRIA program through legislation that Dodd co-sponsored with Sen. Robert Bennett, R-Utah, which also calls for inclusion of group life.
‘Quite simply, Congress needs to insure the people inside the buildings, too’