The issue of increasing protections from terrorism in the group life market was raised during a Sept. 27 joint hearing of 2 House Financial Services Subcommittees.
Rep. Sue Kelly, R-N.Y., who chairs the Subcommittee on Oversight and Investigations, said the failure to include group life coverage under the umbrella of the Terrorism Risk Insurance Act, or its extension, “is equal to a neutron bomb,” the weapon that is supposed to leave buildings and other structures intact while killing the people within them.
Ed Harper, a senior vice president at Assurant, who testified on behalf of the American Council of Life Insurers, Washington, also raised the issue.
“While much of today’s discussion has focused on the need for adequate terrorism insurance within the property and casualty insurance industry, it is also important to discuss how this issue affects the life insurance industry and its policyholders, particularly with regard to group life insurance,” he said. “We respect the need for adequate insurance for buildings, but does it make sense to insure buildings and not the people whose lives might be lost if those buildings go down as a result of a terrorist attack?”
Harper noted that group life insurers, who accounted for 44% or $7.63 trillion out of $17.5 trillion of all life insurance in force at the end of 2004, are especially vulnerable to terrorist attacks because many of their insured individuals are often in close proximity, such as in an office building. Also, a sudden, unexpected death of numerous insureds would put a strain on company surpluses, and could conceivably drive a company into insolvency, he said.
On an industry-wide scale, Harper noted that group life insurers have been unable to obtain catastrophic reinsurance for their terrorism risk. “To the extent that such reinsurance is available, it is limited in coverage and very expensive,” he noted.
Additionally, Harper noted that workers’ compensation, which like group life is provided to many workers, was included under TRIA, and has enjoyed a far greater availability of reinsurance coverage.
“We are confident that catastrophic reinsurance would become more available and affordable for group life if it were added as a covered line in any TRIA extension,” he said in his testimony. “This added reinsurance capacity would significantly reduce the risk of insolvency that many group insurers would surely face if a large scale terrorist attack were to occur.”