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NEW YORK—The Risk & Insurance Management Society Inc. “strongly” opposes two provisions in the Obama administration's budget proposal, the New York-based risk management group said Tuesday.
Scott Clark, RIMS secretary and director of the external affairs committee, criticized the administration's call for scaling back the federal terrorism insurance backstop program. The administration calls for increasing deductibles and copays for insurers that participate in the program, as well as eliminating coverage for acts of domestic terrorism, actions the White House says will save $250 million.
The “proposal to eliminate $250 million is regrettable and disappointing, from the consumer perspective,” said Mr. Clark, who also is risk and benefits officer for the Miami-Dade County School Board in Miami. “In 2007, Congress reauthorized the Terrorism Risk Insurance Act for a seven-year period. TRIA and the federal government's commitment to act as the ultimate backstop for terrorism insurance served to stabilize the market for policyholders,” he said. “To attempt to withdraw the government's support will adversely impact the availability and affordability of terrorism insurance. We hope that Congress will once again see the wisdom in not adopting this as part of its budget going forward.”
Mr. Clark also said RIMS opposes an item in the budget proposal that would impose new taxes on certain reinsurance transactions.
Under the proposal, a U.S. insurance company would not be allowed a deduction to the extent that the foreign reinsurers or their parent companies are not subject to U.S. income tax with respect to premiums received, and the amount of reinsurance premiums, or net of ceding commissions, paid to foreign reinsurers exceeds 50% of the total direct insurance premiums received by the U.S. insurance company and its U.S. affiliates for a line of business.
This would impair the insurance market for individual and commercial policyholders, Mr. Clark said in the statement.
He said an inherent conflict exists in the proposals. The administration would curtail the government's commitment to a “stable market for terrorism insurance” while at the same time “restricting one of the primary means the industry uses to manage its terrorism risk through reinsurance.” He noted that a study by reinsurance research and investment firm Dowling & Partners Securities L.L.C. found that 64% of the losses related to the Sept. 11, 2001, terrorist attacks were paid by foreign insures and reinsurers.
“RIMS intends to strongly oppose both measures,” said the statement.