Group Life Insurers Seek Federal Terrorism Backstop

Posted May 7, 2004 at 4:42pm

Group life insurance companies are asking for help from K Street to secure some insurance of their own — courtesy of the federal government.

The group life insurance industry has launched a public-relations and lobbying blitz in Washington to urge creation of a federal safety net in the event of another massive terrorist strike against the United States.

Shortly after the Sept. 11, 2001, terrorist attacks, the property-insurance industry successfully lobbied for a federal “backstop” to protect them from losses caused by another big terrorist strike.

Group life insurers, however, argue that their industry is in equal peril and thus needs similar federal assurances.

Mutual of Omaha, Jefferson Pilot, Assurant and several other large U.S. companies in the group life insurance business have formed a lobbying alliance — called the Group Life Coalition — to press Congress and the Bush administration.

“Federal policymakers need to make sure that the buildings and the lives in those buildings are properly covered in the case of another terrorist attack,” the new group wrote in a letter to Financial Services Chairman Mike Oxley (R-Ohio) last month.

The industry would like to add group life insurance companies to legislation that renews the post-9/11 terrorism reinsurance law.

But there is no guarantee that the group life insurance industry will prevail.

Last summer, the Treasury Department recommended against expanding the terrorism reinsurance program to include the group life insurance industry.

And for now at least, there is little momentum on Capitol Hill to renew the 2002 law when it expires next year.

Even the lawmakers who have expressed interest in extending the terrorism reinsurance provisions — including Reps. Richard Baker (R-La.) and Steve Israel (D-N.Y.) — have not pushed to include group life insurers in the plan.

Before including group life insurers in the legislation, Baker said, “there needs to be a clearer demonstration that the 9/11 events had adverse effects on players in the industry.”

The Group Life Coalition insists that another major attack could indeed be disastrous for the industry.

The coalition is led by the year-old Navigators lobbying firm, which is run by four prominent Republican lobbyists. The effort is being supported by the American Council of Life Insurers and the Financial Services Roundtable.

With an initial budget of less than $200,000, the coalition is running ads in Capitol Hill newspapers that highlight the risks to consumers if group life insurers are unable to provide coverage if thousands of employees of one company die in a catastrophic terrorist attack.

The ads began running a few weeks ago when the House Financial Services Committee held a hearing on terrorism reinsurance issues.

“The coalition is determined to add group life” to the terrorism reinsurance legislation, said Phil Anderson, a former chief lobbyist for the ACLI and the Independent Insurance Agents of America who is now leading the Group Life Coalition’s lobbying effort.

“Group life is a critical employee benefit to the American worker and our coalition is working to preserve this benefit for employees in at-risk areas and in at-risk jobs like first responders, firefighters and police,” Anderson said.

Unlike individual life insurance, which is sold directly to individuals, group life insurers provide life insurance policies to companies, which in turn offer a policy to their employees as a benefit. More than 150 million Americans are covered by group life insurance plans, the industry says.

Like all insurance companies, including those that cover buildings and property, the group life industry hedges its risk by relying on “reinsurance” companies who keep them solvent in times of unusual loss.

But after Sept. 11, the reinsurance industry raised rates dramatically — and in some cases dropped policies entirely — due to the new, unpredictable risk of catastrophic terrorist attacks.

To ease the situation for property insurance companies, Congress created the terrorism reinsurance law to back them up in the event of future attacks.

As implemented by Congress, the program requires the federal government to cover 90 percent of claims over a certain threshold that result from a terrorist attack. The threshold began at $10 billion and will rise to $15 billion next year.

Group life insurers, however, were not covered by the law.

“After more than two years, the catastrophic reinsurance market for group life is either not available or remains prohibitively expensive,” the group life insurers said in their letter to Oxley. “It was our firm judgment then and now that there remains a need for the inclusion of group life into a federal reinsurance program for acts of terrorism.”

The group life insurance industry wants a similar — but separate — program from the property insurance industry, officials said.