Representatives of the life insurance industry and state regulators voiced support during a Senate hearing for inclusion of group life insurance in any extension of the Terrorism Risk Insurance Act.
At the same time, while Senate Democrats expressed strong support for renewal of the legislation at a hearing, concerns voiced about extension of the current TRIA program by Republicans left it unclear whether there is enough support in Congress for the inclusion of group life in any extension.
All comments were made at a hearing convened by Sen. Chris Dodd, D-Conn., chairman of the Senate Banking Committee, regarding the need to reauthorize the TRIA extension legislation, which expires at the end of the year. “I firmly believe that doing nothing is not an option,” Dodd said. He also implied he will pressure the committee to act promptly, but gave no timetable.
Michael J. Peninger, president and CEO of Assurant Employee Benefits Inc., said at the hearing, “While we certainly agree that there needs to be adequate terrorism insurance coverage for buildings, we also believe that the people who work or reside inside those buildings should be adequately covered for such events as well.”
He was also speaking on behalf of the American Council of Life Insurers.
“Group life insurance is a critical employee benefit,” Peninger said. “For millions of Americans, especially lower-income workers, it is the only life insurance that their families have and can rely on if they were to unexpectedly die.”
Almost $20 billion in death benefits were paid to group life beneficiaries in 2005, which represented about 37% of all death payments, according to Peninger.
He also said the threat of large-scale terrorist attacks presents new challenges to group life insurers.
“Unlike deaths from accidents, diseases, murders and natural disasters, which have been tabulated and analyzed over dozens of years and incorporated into mortality and morbidity tables, there is insufficient historical data in this country relating to deaths from terrorism that can be factored into such tables. Terrorism is, by its nature, unpredictable, so it cannot be accurately forecasted or priced,” Peninger said.
Moreover, following the 9/11 attacks, group life insurers were unable to obtain catastrophic reinsurance for terrorism risks, Peninger said.
“While such reinsurance has become slightly more available since then, it comes with higher deductibles, various exclusions and, most importantly, with overall coverage limits that are substantially lower than were available prior to 9/11,” he said.
“Reinsurance is a fundamental risk-spreading mechanism underpinning the insurance industry,” Peninger said. “Without adequate catastrophic reinsurance, many group life insurers risk financial ruin from a significant terrorist attack.”
Michael McRaith, director of the Illinois Division of Insurance who represented the National Association of Insurance Commissioners at the hearing, pointed out that the NAIC in June 2005 adopted a resolution urging Congress to include group life coverage in any federal backstop plan because a terrorist attack constitutes a potential threat to an insurer’s solvency.
Comparing it to workers’ compensation coverage, in which the NAIC also has a special interest, McRaith noted that unlike workers’ comp, states impose no statutory requirement for group life that prohibits an insurer from limiting available coverage for acts of terrorism in some way.
“However, insurance regulators are not inclined to approve exclusionary or limiting language in those states that have approval authority over the wording in group life insurance contracts,” McRaith said.
“Further, employers are reluctant to purchase coverage for their employees that contains such exclusionary language,” he said
McRaith noted that although there is some level of private reinsurance available for group life coverage, it is not sufficient to cover catastrophic terrorism losses.
However, Travis Plunkett, legislative director of the Consumer Federation of America, voiced strong opposition to adding group life to the program.
He conceded that coverage of incidents of more than $100 billion is needed, and he supported coverage for chemical, nuclear, biological and radiation attacks (CNBR).
He then added, “We strongly recommend that Congress not expand the program to cover group life or other new lines of insurance that have failed to offer any meaningful evidence to justify such an expansion.”