BY ARTHUR D. POSTAL
A terrorist attack with huge loss of life would have a catastrophic financial impact on group life insurers because no reinsurance for this loss is available.
That is what the American Council of Life Insurers is telling the President’s Working Group on Financial Markets, a part of the Treasury Department.
The ACLI submitted its analysis of the impact of terroristic violence on the industry in answer to questions the working group raised about the long-term availability and affordability of group life in the event of such a tragedy.
As part of a mandate under the legislation extending the Terrorism Risk Insurance Act, the President’s Working Group must report back to Congress by September on the need for further government involvement in terrorism risk insurance. The ACLI’s comments were in a letter to the group from Wayne A. Mehlman, ACLI counsel for insurance regulation.
Terrorism risk “has had no measurable impact on the availability and affordability of group life insurance,” Mehlman wrote.
That’s because group life coverage is based “on the sum of probabilities” of individual deaths rather than the probability of many deaths resulting from a single event, his letter said.
Mehlman added that the group life market’s continued inability to price for the risk of terrorism “also explains the current availability and affordability of group life insurance coverage.”
As terrorism is a recent phenomenon in the United States, actuaries lack reliable historical data on the incidence rate of terrorism to predict the frequency and severity of future attacks.