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Protection for group life insurers: a hole in the TRIA bill?

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January ushered in good news for the industry: passage of the Terrorism Risk Reauthorization Act of 2015. The legislation (H.R. 26) yields benefits for both P&C and life insurance companies.

Yet a provision debated as part of the original TRIA bill — reinsurance for group life insurers — never made into the 2015 law.  Insurers and policymakers might view the provision’s absence as unfortunate oversight if, God forbid, the U.S. should again experience an event on a scale comparable to that of the 9/11 attacks.

Weighing the positives

There’s much to applaud in the new law. Passed with overwhelmingly majorities in the House and Senate and signed by President Obama on January 12, TRIA includes a provision long-sought by life insurers: creation of the National Association of Registered Agents and Brokers (NARAB II), which will allow life insurance agents to operate more efficiently across state lines.

The provision will bring much-needed reciprocity in producer licensing through a board of state commissioners and industry representatives. NARAB II will also provide higher and more consistent national consumer protections, while also preserving the rights of states to supervise and discipline agents and brokers.

The primary focus of TRIA is federal insurance of property and casualty companies. Starting in 2016, the bill provides for phased-in increases to the program’s trigger (raising it to $200 million from $100 million in annual aggregate insured losses); and to the insurer co-share (rising to 20 percent from 15 percent). 

The bill additionally calls for an increase in the aggregate amount of insured terrorism losses — to $37.5 billion from the current $27.5 billion — that the private sector would have to bear. Taxpayer dollars used to fund those losses would be recouped post-event.

Given the potentially huge losses stemming from a terrorist attack, P&C insurers see TRIA’s reauthorization as critical to not only the industry, but also the economy in general.

“A well-functioning private terrorism insurance marketplace has been preserved because Congress and the Administration made TRIA’s reauthorization an immediate priority,” says Leigh Ann Pusey, president and CEO of the American Insurance Association (AIA). “The program, which has overwhelming bipartisan support, will continue to protect our nation’s economy against major acts of terrorism.

A hole in the bill

That much can be said for financial losses to property, notably on the commercial kind. Yet a key question remains: Should the legislation also have included a back-stop for group life insurers?

Sponsors of TRIA’s predecessor — the Terrorism Risk Insurance Program Authorization Act of 2007 — thought so. House members voted 303 to 116 to include group life protection. But the final bill dropped this provision, in accordance with a stripped-down version passed by the Senate. The reason: The threat of a presidential veto by then President Bush if group life protection were part of the legislation.

Commenting in 2007 on House passage of the bill (H.R. 4299), a former spokesperson for the American Council of Life Insurers (ACLI) said that adding group life to TRIA would “help assure that this vital source of insurance protection — which is often the only type of life insurance that rank-and-file employees have — remains widely available after a catastrophic attack.”

The issue is evidently no longer a priority for ACLI.  The current spokesperson says the organization has dropped group life from its advocacy agenda.

Echoing this position, James Lee, a vice president of the Association for Advanced Life Underwriting, says that group life has “not been a focus” of AALU. And Mark Briscoe, a spokesperson for the National Association of Insurance and Financial Advisors, notes that NAIFA never lobbied for a group life provision.

Why the disinterest? Clearly, the associations’ legislative strategists have determined that adding a group life component to TRIA would, as in 2007, be politically unattainable; and that their advocacy initiatives would be more productively channeled into a less costly legislative aim: NARAB II.

One can only hope that this political calculus won’t come back to haunt the industry — or the inestimable number of Americans who stand to lose group life protection in the wake of a catastrophic attack.