The President’s Working Group on Financial Markets pointed to a strong market for group life coverage and a recovering market for reinsurance in its report on the terrorism insurance market unveiled last week.
“Coverage for terrorism risk insurance in group life insurance policies has remained generally available and prices have declined, even though group life insurance is not part of TRIA,” the PWG concluded in the report. “Given these market signals, there is no reason to expect negative developments in the group life insurance market.”
The market for group life coverage, the PWG said in the report, has continued to remain strong and competitive, as even those in the market who would support inclusion under the TRIA umbrella acknowledge. The report was conducted by the PWG, which is headed by the Treasury Department, as required by the legislation extending the TRIA program through 2007 that was signed by President Bush late last year.
“By all accounts, competition in the employee benefits market – including the market for group life insurance – is very robust,” the PWG found. “Group life insurers have long argued that due to the competitive nature of the market, they have little ability to raise prices or limit coverage and attempts to manage risk exposure in this manner would result in the loss of business to other providers. Competitive pricing, which has always occurred for large accounts, has also recently been observed with small to midsize accounts.”
According to the PWG’s report, group life insurance certificates in-force totaled 165 million in 2004 with a total face amount of $7.63 trillion, up from 162.6 million certificates with a face value of $6.5 trillion the year before. Additionally, they found that the number of workers in private industry and in metropolitan areas in 2005 had also increased to 52 percent, up one percent from the year before for both groups.
“Despite not being eligible to participate in the TRIA Program, group life insurance still appears to be widely available in the private market and there has not been any impact on cost to policyholders,” the PWG said in its report. “In the long term, given the likelihood of the continuing competitive nature and structure of the group life insurance market, there appears to be no reason to believe that current market conditions will not persist.”
On reinsurance, the PWG found that many of the changes to the property and casualty market that occurred in the wake of the Sept. 11, 2001, terrorist attacks, specifically a sudden lack of available affordable reinsurance, also occurred in the life reinsurance market.
However, the PWG also found that the problems of the reinsurance market have not had any measurable effect on the primary group life market.
“The lack or limited availability of catastrophic life reinsurance following September 11 had no disruptive effect on the availability and affordability of group life insurance to consumers largely due to competitive market forces,” the PWG said. “Since then, some catastrophic life reinsurance has again become available in the marketplace, albeit at higher cost when compared to pre-September 11 pricing. Today, group life insurers are deciding whether to purchase reinsurance, or to forego and retain most of the risk – a decision that has not had any impact on the availability and cost of group life insurance to consumers.”
Group life reinsurers, the PWG found, are increasingly able to model their exposures and price their coverage accurately much in the same way the group believes property and casualty insurers and reinsurers have. As a result, the group concluded in the report that the market is acting and will act as would be expected.
“It is reasonable to expect catastrophic reinsurance to become more available if group life insurers are willing to purchase such coverage,” the PWG concluded. “Nevertheless, the fact that many group life insurers are electing not to purchase catastrophic reinsurance suggests that they have made a decision to retain their terrorism exposure.”