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“Despite longstanding opposition by policy makers on a bipartisan basis, the Obama Administration continues to pursue a policy which is harmful to insurance consumers by capping the deductibility of reinsurance premiums paid by domestic companies to foreign affiliates, ” says John Phelps, director, business risk solutions, Blue Cross and Blue Shield of Florida, Inc. and board liaison RIMS External Affairs Committee.

Phelps noted that a proposal contained in the Administration blueprint would constrain the insurance market for commercial insurance policy holders thereby driving up costs for business at an economically precarious time. The FY 2012 budget appears to adopt, in concept, a proposal similar to legislation introduced in the House of Representatives sponsored by Rep. Richard Neal (D-MA).

“This proposal would have a chilling effect on these insurers and reinsurers who provide an important safety valve in many areas of the country, including my own state of Florida,” says Phelps. “The proposal ignores sound risk management procedures and would inhibit domestic companies with foreign affiliates from engaging in a legitimate risk management practice; ceding reinsurance to an affiliate in order to provide for greater capacity and liquidity.” 

According to Phelps, an economic study of the legislation estimates that if the proposal was enacted into law, it would cost consumers over $10 billion a year. This far exceeds the revenue estimate of $264 million savings the Administration is projecting over five years at a far greater cost to individual policy holders and businesses of all types and sizes.

RIMS was pleased, however, that the Administration’s budget does not evidence a retreat from the federal commitment to serve as a backstop for terrorism risk insurance. This position is consistent with the report recently issued by the President’s Working Group on Financial Markets which acknowledged that without the federal government support, it is highly unlikely that terrorism risk insurance would continue to be available at coverage levels and prices in effect today. RIMS is pleased that the 2012 budget maintains the federal government’s commitment to act as the ultimate backstop for terrorism insurance, which for years has served to stabilize the market for policy holders. Unlike previous administrations, or previous years, the 2012 budget honors the commitments made in the 2007 legislation which does not expire until 2014. This legislation was the product of much negotiation and compromise from all political parties, chambers and branches of government.