Advocates of including group life insurance in legislation extending the federal Terrorism Risk Insurance Act met with little resistance in a House Financial Services Subcommittee on Tuesday.
Thomas Watjen, president and chief executive officer of Unum Group Inc., Chattanooga, Tenn., told subcommittee members that group life is a valuable benefit for employers and employees alike.
“Group life insurance is a critical employee benefit,” Watjen said, appearing on behalf of the American Council of Life Insurers. “For millions of Americans, especially low-income workers, it is the only life insurance that their families have and can rely on if they were to unexpectedly die.”
Because group life is offered through employers, group life insurers would be especially hard hit in the event of a major terrorist attack, he said.
“Unlike individual life policies, where the insured individuals are generally scattered throughout a particular area or region, group life policies usually have very high concentration risks,” he said.
If it is included under a TRIA extension, group life should also operate under a separate recoupment mechanism than other lines, Watjen argued.
Members of the subcommittee, including its chairman, Rep. Paul Kanjorski, D-Penn., endorsed its inclusion of group life in TRIA, as has Barney Frank, D-Mass., Financial Services Committee chairman, in comments made earlier this year.
One obstacle for group life advocates in recent years is that government studies found that while group life reinsurance has been generally unavailable, primary carriers have been willing to offer coverage at relatively affordable rates.
This is all the more reason why lawmakers should provide group life insurers with the same federal backstop it provides to property insurers, Watjen said.
“We as an industry are taking on more risk,” he told the panel, “more risk, frankly, than we feel is appropriate.”
The general consensus of witnesses at the hearing was that 10 years should be the minimum extension of the TRIA program, with some seeking as much as 25 years or even a permanent program.
Some members of the subcommittee questioned whether such a long-term extension would reduce the incentive for the private market to develop its own means of providing for terrorism risk. Rep. Kanjorski offered a proposal of 6 to 8 years, arguing that it would maintain the “delicate balance” of providing security to the market while still spurring insurers to act on their own. A longer extension would push the issue so far into the future that few, if any, of the current members of the subcommittee would remain when it came up again, he argued. As a result, he said, future lawmakers would effectively be starting at square one.
Rep. Scott Garrett, R-N.J., argued that shorter extensions allow for periodic review of the market by lawmakers as well as a gradual scaling back of government exposure.
Witnesses before the panel countered, however, that it does not appear the insurance industry will develop an effective method of predicting terrorism losses any time soon.
“I don’t see anything on the horizon,” said Brian Dowd, chief executive officer for ACE North America, a unit of ACE Ltd., Hamilton, Bermuda, appearing on behalf of the American Insurance Association.