Advocates of including group life insurance as a covered line in legislation extending the Terrorism Risk Insurance Act met with little resistance in a House Financial Services Subcommittee hearing last week.
Thomas Watjen, president and CEO of Unum Group, appeared before the committee on behalf of the American Council of Life Insurers. In his testimony, he noted that group life is a valuable benefit for employers and employees alike.
“Group life insurance is a critical employee benefit,” Watjen said. “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.”
However, he added that because group life is offered through employers, group life insurers would be especially hard hit in the event of a major terrorist attack.
“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, Watjen argued that group life should also operate under a recoupment mechanism that is separate from other lines. “Recoupment of amounts paid by the Treasury for losses relating to property and casualty insurance should only be made by property and casualty insurers,” he said. “Similarly, recoupment for losses relating to group life insurance should only be made by group life insurers.”
None of the other witnesses appearing before the subcommittee, including representatives of the property-casualty industry, risk retention groups and the commercial real estate market, offered any opposition to the inclusion of group life under TRIA. Members of the subcommittee, including its chairman, Rep. Paul Kanjorski, D-Pa., also offered their endorsement of its inclusion, as has Financial Services Committee Chairman Barney Frank, D-Mass., in previous comments.
An obstacle for group life advocates in recent years has been the findings of government studies that while group life reinsurance has been generally unavailable, primary carriers have been willing to offer coverage at relatively affordable rates.
This, Watjen said, is all the more reason why lawmakers should provide group life insurers with the same federal backstop it provides to property insurers.
“We as an industry are taking on more risk,” he said, “more risk, frankly, than we feel is appropriate.” Group life insurers provide the coverage, he said, because of how important it is to many workers.
Much of the subcommittee hearing focused on how long a proposed extension of the TRIA program should last, and the general consensus of the witnesses was that 10 years should serve as the minimum for an extension, with some seeking as much as 25 years or even a permanent program.
While a number of members of the subcommittee agreed with that assessment, some questioned whether such a long-term extension would diminish the incentive for the private market to develop its own means of providing for terrorism risk. 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, he argued, 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. As a result, he said, Congress would lose its “institutional memory” of the issue, and future lawmakers would effectively be starting back at square one.