Terrorism Risk Insurance Act

TERRORISM RISK INSURANCE EXTENSION ACT

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Mr. NELSON of Nebraska. Mr. President, although the Senate's passage of the Terrorism Risk Insurance Extension Act of 2005 is a good start to ensuring continuity within our financial markets in the event they are impacted by another terrorist attack, I am disappointed the Act failed to include group life insurance.

Over 160 million working Americans have coverage through a group life policy. For many, this coverage is their only form of life insurance. Loss of this benefit would threaten their families' financial stability.

Group life insurance poses unique risks to the carriers that provide it. Much like workers' compensation insurance, the high level of risk concentration by employer and worksite makes group life insurance particularly vulnerable to large-scale losses from events such as terrorist attacks.

Before the September 11 tragedy, group life insurers protected against large-scale losses through the purchase of catastrophe reinsurance. Since that time, group life insurers have experienced a decreased availability of catastrophe reinsurance coverage. At the same time, the cost of this limited coverage and its related deductible have increased to the point where the coverage is cost-prohibitive. Additionally, it is not uncommon for catastrophe reinsurers to exclude terrorism on most quotes.

Opponents of group life's inclusion argue that free market participants should be able to reach a price on any commodity. But this mindset ignores the fact that group life insurers do not operate in a truly free market. Even if group life insurers wanted to exclude coverage for terrorist acts--which many, for good public policy reasons, reject as an option--they currently are prohibited from doing so.

Ordinarily, insurers would control their risk exposure through the premiums they charge. However, in the context of terrorism, this mechanism also is no longer available for group life insurers. The lack of historical data on the incidence rate of terrorism in the United States prevents insurers from pricing for this risk. Moreover, the very nature of terrorism--a non natural event--makes it a risk for which actuaries have no basis to price.

The bill's required analysis of the long-term availability and affordability of insurance for terrorism risk, including group life coverage, simply offers the distant hope of a solution for group life insurers. Daily reminders of the continued threat of terrorism require an immediate solution.

For these reasons, I respectfully urge members of the conference committee to look beyond the buildings the act would protect and protect the people inside those buildings by including group life in the extension.

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