Challenges hurtling out of Washington could hurt the business
U.S. group life insurers continue to wrestle for new business while facing rising health insurance costs and blasts of disdain from Washington.
The financial statements that insurers are sending to the National Association of Insurance Commissioners, Kansas City, Mo., show that the insurers are winning plenty of new business but having trouble increasing the amount of new group life business actually in force.
The number of new group certificates issued rose 18% between 2003 and 2004, to 26 million, and the face value of the new coverage issued rose 4.9%, to $1.1 trillion, according to National Underwriter Insurance Data Services’ tabulations of the NAIC data.
Total group life premium revenue rose 9.8%, to $28 billion.
But net gains plateaued at $2.7 billion, and the total number of group life certificates in force fell to 189 million at the end of 2004, down 0.7% from the total a year earlier, according to the NAIC data.
Executives in the group life market say the market is so competitive partly because skyrocketing group health costs are consuming more of benefits managers’ attention and budgets.
Employers “are so focused on health care costs, the group life piece is just sort of taken for granted,” says Jennifer Borislow, president of Borislow Insurance Inc., Methuen, Mass., who has been selling group insurance products for 24 years. “The insurance companies are struggling with rates coming down.”
Deanne Strable, senior vice president of specialty benefits at Principal Financial Group Inc., Des Moines, Iowa, is observing the same kind of fierce competition.
“Group life is a somewhat commoditized product,” Strable says. “We’re not seeing a lot of new products.”
Survey results from the federal Bureau of Labor Statistics hint that pressure may be even greater on the West Coast, in the BLS Pacific region. Employers throughout the United States seemed to shift to somewhat lower group life benefit levels between 2003 and 2005, but the change was especially prominent in the Pacific region.
There, at plans where the death benefit is based on a ratio to the employee’s earnings, the percentage of group life plan members getting death benefits equal to two or more times earnings fell to 28% this year, down from 38% just two years ago.
For the most part, “people are still holding on to the group life plans,” Borislow says.
But many employers are reducing the amount of employer-paid coverage or holding it steady while encouraging employees to buy employee-paid supplemental coverage, Borislow says.
Meanwhile, group life market players have landed in the middle of two major battles in Washington: one over efforts to extend and expand the federal Terrorism Risk Insurance Act program, which now excludes group life, and the other over efforts by the President’s Advisory Panel on Federal Tax Reform to develop ideas for revamping the federal income tax system.
At press time, the outcome of the TRIA extension fight and the fate of the tax reform panel recommendations were unclear.
Emil Henry Jr., assistant secretary of the Treasury for financial institutions, said earlier this month that Congress should keep group life out of TRIA because the group life market is doing well, even though it has been excluded from TRIA in effect until now, and because the administration believes group life insurers have made too little use of private reinsurance.
“Group life insurers are lobbying mightily for an expansion,” J. Robert Hunter, insurance director at the Consumer Federation of America, Washington, and Travis Plunkett, the CFA’s legislative director, wrote in a letter sent to Senate leaders. But “there is no meaningful evidence that justifies expanding TRIA to cover group life insurance,” they wrote.
Meanwhile, government officials say a massive nuclear, biological or chemical terrorist attack could cause tens of billions of dollars in life insurance losses.
In the event of a huge terrorist attack, regardless of what insurance and reinsurance programs were in place on paper, the federal government probably would have to step in to help group life insurers cope, if it were in a position to do so, says Thomas Corcoran, a principal in the Hartford office of Tillinghast-Towers Perrin.
“You really can’t walk away from it,” he says. “People need the benefits to survive.”
Over in the tax reform arena, the president’s tax reform panel drew the most attention by proposing a new cap on deductions for home mortgage interest payments. But the panel also has proposed a cap on the deductibility of group health premiums and elimination of deductions for most other fringe benefits.